At a time when market volatility and the devaluation of the dollar have rekindled doubts about allocating to the world's largest economy, Citi Wealth seems to be strictly following a maxim of Warren Buffett: "Never bet against the United States."
That's the opinion of John Patrick Coviello, known as JP Coviello, head of portfolio strategy at Citi Wealth, who spoke exclusively with NeoFeed about the firm's outlook for the start of the year and why the bank believes that, despite the macroeconomic noise, the scenario still favors quality risk assets.
According to the institution, the US remains the structural anchor of global portfolios, while China, gold, and commodities are gaining ground as strategic vectors for diversification and protection.
One of the central points is the likely new chairman of the Federal Reserve, Kevin Warsh, nominated by Donald Trump and still awaiting Senate confirmation. Although part of the market sees Warsh as more inclined towards interest rate cuts, Citi maintains a cautious stance.
“We believe the market is a little too optimistic. The US economy is doing well and there is no need for an interest rate cut as expected,” says Coviello.
The firm's assessment is that the lagged effects of the cuts implemented in 2025 and the boost from the One Big Beautiful Bill Act (OBBBA) – with tax refunds in the first quarter and incentives for investment and R&D – should support consumption and profits throughout the year. In other words, the environment is one of robust nominal growth and persistent inflation, more compatible with portfolio calibration than with an immediate narrative of a Fed "pivot".
That is why, even in the face of increasing global diversification, Citi maintains a structural overweight in American equities, anchored in fundamentals such as strong profits, healthy balance sheets, and the ability to absorb shocks.
Episodes of volatility caused by headlines – from tariffs to monetary policy – are seen as moments to “add quality.” “The flow to the US has slowed, but hasn’t stopped. There’s no boycott. And, in the end, everyone is looking for growth. And the country looks like it will deliver,” says Coviello.
On the directional side, artificial intelligence remains a central axis. The bank projects an aggressive global investment cycle, with corporate capex at new highs in 2026, driven by demand for AI infrastructure. This should support prices for natural resources, critical metals, niche industrial suppliers, and skilled labor.
China is Citi's second major overweight , but with a clear focus. Traditional sectors, such as housing and construction, remain under pressure. Interest is concentrated in technology, where the bank sees solid progress, more predictable policies, and a shift since 2022 in the debate on "investability," now more favorable to domestic productivity and innovation.
Latin America also remains overallocated, particularly Brazil and Mexico, which have benefited from interest rate cycles, exposure to commodities, and increased flows to emerging markets.
John Patrick Coviello, known as JP Coviello, head of portfolio strategy at Citi Wealth.
Check out the main excerpts from the interview:
In your report to clients, you say you are seeking more discipline and less noise when building portfolios this year. In your view, what was the "noise" that distracted you from what really matters?
I think the biggest noise in 2025 came from tariffs. There wasn't a shift, because, at the end of the day, we saw profit growth in the US—and also in China—strongly impacting stock returns last year, despite the tariff announcements. This shows us that fundamentals are what really matter. Of course, there were sectors affected by tariff announcements, but we always come back to their fundamentals as well. And today, the US and China have economies doing well.
And what could become noise in 2026?
This year, some of the risks we mentioned have to do with tariffs being cut. So, again, tariffs and how much they actually change fundamentals. Another point is persistent inflation in the US and elsewhere, especially in the services sector. We don't see as much room for interest rate cuts in the US as the market is pricing in today, with three cuts this year and even more so at the beginning. So, we see that as a risk.
You mentioned tariffs being knocked down. What does that change?
If they are overturned by the Supreme Court, it would affect revenues that were expected from the tariffs going forward. If they are not reinstated in some way, through Section 232 tariffs or another route, the lack of those revenues would likely affect the long end of the US yield curve, due to the fiscal shortfall.
You say the Fed might disappoint those expecting quick cuts. If the Fed ends up being more hawkish than the market wants, what are the risks? And what's the best hedge?
If that happens, I believe the market can digest and absorb it as long as earnings growth continues and fundamentals remain solid. We expect that to happen. Now, if things become more volatile, gold tends to work well as a portfolio asset. It's something we hold for the long term. It's not a tactical operation. It's something we use to partially replace fixed income in portfolios and we see it as a way to make the portfolio safer. We recommend around 4% exposure.
And from the perspective of economic sectors, who will suffer the most if the Fed tightens its grip?
Typically, when the Fed becomes more hawkish , unprofitable areas of the market—including within technology—tend to suffer significantly. This is one of the most susceptible areas if the Fed becomes decisively more hawkish going forward.
But we have a likely new chairman at the Fed, Kevin Warsh, who is considered more likely to cut interest rates, right?
The consensus is that he is more inclined towards cuts to offset the shrinking balance sheet. But it's difficult to say, because the economy seems healthy, the labor market is stable, and corporate profits are near highs. The lagged effect of monetary policy and the impact of fiscal policy are still unfolding. So, for us, it's more about the state of the economy than about the individual. I don't see a need for rapid interest rate cuts, given how strong the economy is.
But we saw a lot of speculation about who would be president, and the issue of government intervention even affected prices. Now that we know he has been nominated, what changes?
The most interesting point is his vision of being less interventionist. And that probably won't happen "during his term" unless there's a major problem. Historically, the Fed has bought mortgages, Treasuries, and even corporate bonds, but I don't imagine him going beyond Treasuries. He wants a smaller balance sheet and wants banks to have more free capital. But his appointment still depends on the Senate. So, we need to keep an eye on it. I don't think the market has reacted much yet, despite the nomination. It will be interesting to see how he communicates and what he really thinks.
There's a lot of talk about an artificial intelligence bubble. How are you viewing AI pricing? And how do you distinguish between good companies and those "riding the bubble"?
We look at three areas of AI. You have the epicenter, mainly the hyperscalers , who are doing all the investing. They are building data centers and investing at a very strong pace, with a good portion coming from free cash flow . There has been some debt issuance, but small compared to what they could do. In the long term, we expect hyperscalers to do very well. Profits remain fantastic, whether it's Microsoft or Meta. They are just spending more than the market is used to.
So, in practice, are the "Magnificent Seven" still "core" for you? Aren't they expensive?
We see the "Magnificent Seven," the hyperscalers , as core holdings . It's not something to trade constantly, because the fundamentals are very solid: very high free cash flow margins, unprecedented in history. So, we hold them as a long-term position. And we look at other areas as more tactical positions.
What areas would those be?
This strategy, which we really like, involves natural resources and commodities that are essential in the supply chain. We are seeing supply constraints in copper and other metals. Traditional energy companies are gaining traction because, when we consider the needs of a multi-year capex cycle for a transformational technology, then energy and commodities are key.
How do they work as critical minerals?
Yes. Critical minerals are being treated as a matter of national security. In the US, there is a list of 60 critical minerals now, including copper and silver, which were not on the list in 2024. This is also exacerbating price movements in some commodities.
And what would the third area be?
Who will gain productivity with AI, such as robotics? General Motors recently said it will put 2,500 robots in a factory. This seems to be just the beginning of the acceleration of robotics in American manufacturing. And this requires different materials, specialized suppliers, and changes the landscape of AI use going forward. This also connects to autonomous vehicles. The memory requirements for robots and vehicles to operate in real time are enormous because there can be no delay in information transfer.
Many people say that the S&P is high and concentrated in a few stocks. Aside from AI, what are the opportunities in US equities?
We have a very positive outlook and are overallocated. After the interest rate cuts last year, this should now reach the real economy, and we will see the impact of these cuts very soon. And this is happening at a time when we will see the impact of the fiscal stimulus approved in July of last year appearing with the tax returns of American consumers. This should continue to support growth. There is a lot "under the hood" supporting growth. And, if productivity accelerates with AI, this also helps growth and may even mean that interest rates should be higher in the long term. But we don't have a position in American small caps because we consider them fundamentally underperforming: many are unprofitable in the indices we use.
There is a global movement of diversification away from the US. Could this become a problem for the American market over the course of the year?
We've seen fewer flows into the US, but it's not a boycott. What exists is a search for marginal diversification. Last year was a wake-up call for those who didn't have a dollar hedge, as this hadn't been necessary for a decade. We don't think the dollar will lose its status as the primary store of value anytime soon, but there is more diversification, including inflows into Europe for the first time in over a decade. This can affect markets, and it did last year without stronger economic fundamentals. But the key point is that flows into the US have slowed, not stopped. And the fundamentals remain too robust to be ignored. So we remain advocates of an overweight position in the US, but we understand the need to diversify where the fundamentals make sense.
Considering a Brazilian investor building a portfolio abroad: how to balance stocks and fixed income in this scenario? Is it time to rebalance?
It's a case-by-case basis. There's no one-size-fits-all approach. But, for our core portfolios, in our model, it would be 60% in stocks, 36% in fixed income, and 4% in gold.
And where in the world should they be most overallocated?
We are also overweight in China, as well as in Latin America. Europe has been performing more due to multiple expansion than earnings growth and is in a "show me" phase: it needs to deliver earnings growth to keep going. Therefore, we are underweight in European duration due to expectations of fiscal stimulus and persistent inflation. We are also underweight in Japanese duration for reasons of fiscal stimulus.
Why China? Is it AI too?
Yes. We looked at China's five-year plan to see how far they want to take AI and technology as a productivity driver. Housing and construction, the most "real economy" sectors, have been lagging for a long time, and we don't see that turning around anytime soon. I think the government knows this and wants stability. Technological advances, however, are very impressive, and the focus should be on them. And "investability" has changed: in 2022, many investors considered China uninvestable due to confusing policies. Now, we see a policy shift towards embracing domestic productivity tools and technology. The US and China are competitors, but mutually dependent: China depends on technology and chips; we depend on rare earths and other things.
And you said you're also overallocated to emerging markets. Is Brazil on that list?
We were tactically optimistic about Brazil and Latin America, mainly due to the commodities boom and also the financial sector. If you want that kind of exposure, Brazil is a great option. For us, market size matters, and Brazil is the largest in Latin America. That's why we were also tactically overallocated. But we exited the tactical position in the last two weeks to realize profits. However, we remain strategically overweight in Brazil and Latin America.
But looking ahead, are you still optimistic?
Looking ahead, I'm honestly not sure. We prefer broader exposure to commodities rather than being concentrated in specific currency risk and a stock market that, in practice, is concentrated in two sectors. That's why we prefer investing in commodity and financial indices, which have exposure to Brazil, rather than Brazil itself.
For Brazilian investors, another hot topic right now is the devaluation of the dollar. What do you recommend?
What we saw in October and November—which motivated the tactical overweighting in Brazil—was a perfect storm for Brazil's portfolio composition: the financial sector and commodities. This supported the currency and equities, and having one of the highest real interest rates in the world helps, through carry trade . But, for the Brazilian client, I want them to sleep soundly at night. I want them to be diversified outside of Brazil, outside of the real. How much? It's case by case, but it's prudent. Historically, in the last 10 to 15 years, Brazil has had periods of political risk that cannot be fully anticipated. Diversifying currency exposure helps with sleep at night. But it's certainly time to also look at other strong currencies globally.
