Citi Pours The Kerosene In The Fire

Citigroup Global Markets are out with latest Global Equity Strategist, and valuing recovery:

First 100 Days — Global equity markets have rallied 46% since their March lows in anticipation of an earnings recovery. But we remain in the Twilight Zone. As corporate earnings are still falling, valuations have re-rated sharply.

A Bull De-Rating — Global corporate earnings should start to turn around at the end of this year. We expect earnings to rise faster than prices, which would drive an equity de-rating. This is typical at this stage in the earnings recovery.

Valuations Reasonable — Global equities currently trade on 21x our trough earnings forecast, but should de-rate to 16x as the earnings recovery comes through in the next two years. Equity valuations against bonds look compelling.

Still Upside — Reasonable valuations and a solid earnings recovery suggest further upside for global equities. But the greatest gains have already been made. In such an
environment, stock selection will become increasingly important again.

Earnings Recovery — Sectors with low RoEs have outperformed high RoE sectors
during the early stages of earnings recoveries. This time round such a strategy would leave investors Overweight in Financials and Underweight defensives.

Where were these guys when Citi itself was sinking? I do not know ... but this feels late.

The air smells to me somewhat thin, and I am defensive.