Citigroup’s plan to survive AI aftershocks: Bet on bonds and small-cap stocks

MarketWatch

by Barbara Kollmeyer

February 20, 2026

AI-Generated Deep Dive Summary

Citigroup’s latest strategy for navigating AI-induced market volatility centers on investing in bonds and small-cap stocks, according to a recent report by the bank’s macro strategists. The team led by Dirk Willer suggests that these asset classes could act as a hedge against potential disruptions caused by an AI-driven economic shift, such as labor market dislocations or a burst of the AI bubble. This approach reflects a growing emphasis on defensive investments amid heightened uncertainties in the financial markets. The report highlights U.S. bonds as a key component of this strategy due to their stability and ability to provide returns during periods of economic uncertainty. Bonds are seen as a safer alternative compared to riskier assets like technology stocks, which have been downgraded to neutral by Citigroup analysts following concerns over AI-driven risks. Similarly, small-cap stocks are recommended for their resilience in cyclical industries, making them less vulnerable to the rapid changes brought about by AI advancements. The strategists also caution against investing heavily in sectors that could be directly impacted by AI, such as technology and commodities, which have been downgraded to neutral. This shift underscores a broader rethinking among investors about how to allocate capital in an era where AI is reshaping industries and creating new risks. By focusing on bonds and small-cap stocks, Citigroup aims to help investors weather potential disruptions while maintaining a diversified portfolio. For readers interested in finance, this strategy matters because it offers actionable insights into safeguarding investments against the unpredictable effects of AI. As technological advancements continue to influence markets, understanding how to balance risk and growth becomes critical for long-term financial planning. Citigroup’s approach emphasizes the importance of adaptability and defensive positioning in a rapidly evolving economic landscape. In summary,Citigroup’s advice to investors is to prioritize stability over speculation by focusing on bonds and small-cap stocks. This strategy not only helps mitigate risks associated with AI but also aligns with broader trends of cautious optimism in financial markets. For those seeking to navigate the uncertainties of AI-driven change, this report provides a valuable roadmap for maintaining financial resilience.

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Originally published on MarketWatch on 2/20/2026