Here’s where to invest in AI, copper and credit before the holidays, according to Citi

Here’s where to invest in AI, copper and credit before the holidays, according to CitiListen(4 min)Listen(4 min)Forget turtledoves and golden rings. When December rolls around, investors expect Wall Street strategists to deliver actionable trade ideas.And that is exactly what they got from the global macroeconomic strategy team at Citi Research this week. In a report shared with MarketWatch, the Citi strategists served up a handful of trade recommendations, as well as some stray predictions on market-relevant topics like Federal Reserve interest-rate policy and Chinese aluminum production.Among the recommended trades: a leveraged bet that the artificial-intelligence trade will continue to power the Nasdaq-100 NDX higher.

The team recommended that investors buy out-of-the-money call options on the index set to expire in December 2026.As long as capital investment continues to grow and liquidity in the financial system remains ample, investors should have plenty of time to continue riding the AI bubble as it inflates, they said.“We see the AI bubble likely building further in 2026. The big sector rotation happens after the bubble peaks, not before. While diversification is likely still helpful next year, tech should be part of the longs,” the team said in the report. Speaking of the rotation trade that has been making headlines this month, Dirk Willer, Citi’s global head of macro strategy and asset allocation, and his team said they expected cyclical sectors like financials to continue to thrive alongside tech. What they described isn’t so much a rotation as a bullish broadening as the bull market enters its fourth year.

The team said financials should outperform consumer staples, a defensive sector, and recommended an overweight allocation to financials and an underweight allocation to staples.“We think cyclicals can do well in a reflating economy,” the team said, referring to a scenario where both inflation and the pace of economic growth are picking up. A note of caution arrived with Citi’s next theme: Stocks and bonds typically struggle during midterm-election years, Willer and his team pointed out. Furthermore, that weakness tends to arrive in the third quarter. It is more likely to happen when the incumbent party retains control.As for how to profit from Citi’s call that the pace of global growth will pick up in 2026, the team suggested going long copper. One benefit: This is an “all weather” trade, meaning it is somewhat insulated from what happens in the U.S. Investors can buy copper futures or a call option on copper futures, or invest in a copper exchange-traded fund.When it comes to the Fed, the Citi team said they remain skeptical that whomever President Donald Trump selects to succeed Jerome Powell as chair will compromise the central bank’s independence. Still, with rate cuts expected to continue, the Citi team expects the Fed to run the economy hot next year, which could stir up inflationary pressures later in 2026. The result could be investors demanding a higher-term premium to hold longer-dated U.S. debt, which could weigh on Treasury prices.In the bond market, yields move inversely to prices, rising as prices fall.Finally, the Citi team recommended an interesting cross-asset relative-value trade: long AI equity, short AI credit.The team’s strategists expect the AI trade will likely continue to carry major indexes like the S&P 500 SPX higher. But as investors continue to worry about credit exposure, the premiums on credit-default swaps tied to Oracle Inc.’s ORCL debt and other AI-linked bonds could continue to climb. A winning trade in this scenario would be long the S&P 500 and long a basket of investment-grade swaps, the Citi team said.See: Oracle is the canary in the coal mine for Big Tech’s debt-fueled AI spending spreeGiven that much of this debt is still investment grade, the Citi team recommended going long the S&P 500 and long an index of investment-grade credit-default swaps.About the AuthorJoseph Adinolfi is a markets reporter at MarketWatch. Copyright © 2025 MarketWatch, Inc. All rights reserved.