Citi: buy stocks if there is an S&P 500 pullback ahead of the midterm elections

Citi told investors that it plans to use any market weakness in the run-up to the U.S. midterm elections to increase the equity allocation in its portfolio.

The bank noted that just a month ago it argued that a peak in the stock market was unlikely, given that sentiment was not overheated, liquidity was improving as the likelihood of Fed rate hikes declined, and its risk indicators had not been triggered. Liquidity concerns have become less pronounced, the bank said, citing steps taken this week by the U.S. Treasury Department to stabilize the long end of the yield curve. While it is still unclear whether these measures will prove sufficient, Citi believes that they should, at the very least, reduce volatility in fixed-income instruments, which tends to have a greater impact on equities than the level of yields per se.