Citigroup predicts investors can forget about the Santa Claus rally this year

Wall Street is not likely to see a bounce at the end of the year because the 2022 performance so far has not been high enough.

The team, led by strategist Dirk Wheeler, said in a note to clients released Friday that given that a sharp change in Fed strategy is out of the question at this point. The focus of the remaining bulls is gradually shifting to whether the midterm elections and improved seasonal performance in November/December can improve the outlook for stocks, which we doubt.

The S&P 500 lost 21% in 2022, leading to its worst year-to-date performance since 2008, when the index fell 38% during the global financial crisis. After the U.S. Federal Reserve announced its third 75 basis point rate hike straight earlier this week. It was also stated that the tightening policy will be continued.The index could fall nearly 3% in a week.

On Friday, Goldman Sachs lowered its year-end forecast for the S&P 500 to 3,600 from its forecast of 4,300 at the beginning of the year. They justified their decision by a dramatic change in the path of rising interest rates. 

The so-called "Santa Claus rally" refers to the gains seen in the last five sessions of the calendar year and the first two sessions of the following year. 

The Citi team said that they remain underweight stocks, and they reduced their outperformance on China stocks, although they have an outperformance on protective UK stocks.