Strategists at Citigroup indicate the pattern of U.S. stock market outperformance, driven by a handful of large technology companies, is expected to persist. A team led by Beata Manthey maintains an overweight position in the U.S. market within their global asset allocation strategy, favoring the technology, healthcare, and materials sectors at the industry level. She wrote in a report, "We anticipate the trend of market concentration will continue. Fundamentals are set to be the dominant factor, especially while the spillover effects from the Iran conflict remain uncertain." Fueled by a renewed surge in enthusiasm for artificial intelligence, U.S. stocks have continued their upward trajectory after overtaking European markets earlier this year. The S&P 500 has risen 8.4% since 2026, while the Nasdaq 100 has surged nearly 16%, primarily propelled by robust buying in semiconductor and related stocks. The technology sector constitutes 37% of the S&P 500, compared to a mere 6.3% weighting in the STOXX Europe 600 index. The gains in U.S. stock indices this year have been almost entirely attributable to a few mega-cap stocks. Manthey added that if progress is made toward a durable U.S.-Iran ceasefire, previously lagging stocks might catch up as portfolio positions are readjusted. She noted that the attractiveness of continental European markets is increasingly growing. Within that region, aside from energy, software, retail, and real estate are the most appealing sectors based on screening results, she stated. Manthey was among the first Wall Street strategists to upgrade Europe to an overweight rating in October 2024, a time when most investors were still avoiding the region. She downgraded the European market rating again in January of this year, after which European markets underperformed the U.S. In the latest report, her team identified overly optimistic earnings expectations as a key risk facing global equity markets. Market valuations still appear to be based on anticipated upward revisions to earnings. However, the current consensus expectation for over 20% profit growth in 2026 may need to be adjusted downward, particularly for more cyclical industries and regions. "Geopolitical risks remain," the team cautioned. "The 'Goldilocks' macroeconomic environment and pro-cyclical trading patterns seen earlier this year may be difficult to replicate."