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    "parsed_content": "Following the Earnings: Where We Are Adding Equity Risk\nWeekly Market Update\nTakeaways\nCybersecurity seeks exposure to AI adoption without picking the ultimate model or\nplatform winner. As AI agents multiply across enterprises, we believe security spending\ncould become an unavoidable cost of doing business.\nJapan combines firm growth, accelerating earnings revisions, and record corporate\nprofitability, while investor positioning remains far from euphoric. We moved Japanese\nequities to a modest overweight to help capture this setup.\nU.S. large caps remain our quality anchor, and valuation compression has created a\nbetter entry point. We fund these additions from securitized fixed income, where tight\nspreads offer limited compensation amidst rate volatility.\nThis Week in Charts\nFigure 1: Security spending for AI systems is\nexpected to grow 5x faster\nThis graph shows the Compound Annual Growth Rate between security for AI\nsystems compared to overall cybersecurity.\nSource: Gartner as of September 25, 2026.\nLooking Closer\nWe believe cybersecurity spending is poised to become one of AI's largest second-order\nbeneficiaries. As AI adoption expands enterprise data access, identities, endpoints, and\napplication connections, security risks are rising rapidly. AI security spending is\nexpected to grow roughly five times faster than overall cybersecurity, creating a\ndurable investment opportunity without betting on a single AI model or platform.\nKate Moore\nChief Investment Officer\nJP Coviello\nHead of Portfolio Strategy\nJeff Puckette\nMacro Portfolio Strategist\nConrad DeQuadros\nHead of Economics\nOlaolu Aganga\nHead of Portfolio Construction & Analytics\nMarket and Data Recap\nCybersecurity: AI's insurance policy as the attack surface expands\nLast week, our Global\nInvestment Council selectively increased equity exposure where earnings and secular\ndemand look strongest. We added to cybersecurity, Japan, and U.S. large caps, and we used\nsecuritized fixed income as the funding source in our multi-asset class portfolios.\nWe start with cybersecurity because AI adoption expands the enterprise security perimeter.\nEvery new AI agent brings more users, identities, data access points, and connections across\nenterprise systems. Each connection creates another endpoint that companies must\nauthenticate, monitor, and protect, and the data flowing into AI workflows often ranks among\na firm\u2019s most sensitive.\nIndustry data shows how quickly this surface is growing. 40% of enterprise users have\ninstalled AI-powered browser extensions, and 64% of those extensions can access sensitive\ninternal data. AI bot traffic grew 300% year over year in 2025, while daily API attacks rose\n113%.\nSpending could follow. Projections show security spending for AI systems growing at a\nroughly 65% compound annual rate from 2026 through 2028, about five times the 13% pace\nexpected for overall cybersecurity spending (Figure 1). In our view, markets still\nunderappreciate this spending wave.\nFor portfolios, cybersecurity offers exposure to AI adoption without requiring a view on\nwhich model or platform ultimately wins. We see it as AI\u2019s insurance policy, since few\nexecutives will leave their systems unprotected as adoption broadens.\nBottom line: Cybersecurity is becoming an unavoidable cost of enterprise\nAI, and we believe the spending cycle has only begun. It offers investors a durable way to\nparticipate in AI adoption without betting on a single model or platform.\nJapan: Firm growth, accelerating earnings, and record profitability\nJapan combines a cyclical improvement in growth with a structural improvement in corporate\nprofitability. The macro and earnings signals are pointing in the same direction, which\ngives us the conviction to move Japanese equities from a slight underweight to a modest\noverweight.\nJapan\u2019s growth backdrop remains firmly expansionary. Both its three-month and six-month\naverage PMI readings are expansionary and rising, placing Japan alongside the U.S. with\nrespect to macroeconomic momentum. Outside the U.S., Japan shows some of the strongest\ngrowth momentum among developed markets.\nEarnings revisions send an even stronger signal. Across MSCI Japan, upgrades now outnumber\ndowngrades by 2.6 to 1 on a three-month rolling basis, well above the long-term average of\nroughly 1.0 (Figure 2). The one-month revision ratio has accelerated sharply, and the\nthree-month trend confirms that the improvement extends beyond a single set of recent\nestimate upgrades.\nFigure 2: Earnings upgrades outnumber downgrades by\n2.6 to 1\nThis chart shows the ratio of upgrades to downgrades for 1 month earnings\nrevision, 3 months, and average since 2010.\nSource: Datastream as of September 25, 2026. Yellow circle indicates\nrecent positive equity revision surge in Japanese equities. Indices are unmanaged.\nAn investor cannot invest directly in an index. They are shown for illustrative\npurposes only and do not represent the performance of any specific investment. Index\nreturns do not include any expenses, fees, or sales charges, which would lower\nperformance. Past performance is no guarantee of future results. Real results may\nvary.\nCompanies are converting this backdrop into realized profits. Japanese corporate profits\nhave climbed to 22% of output, a multi-decade high in data going back to 1970. We treat\nprofitability as our north star for the U.S. cycle, and it carries similar weight for us in\nother markets, since recessions have historically coincided with declining corporate\nprofits.\nPositioning completes the picture. Rolling 65-day ETF flows into Japan remain near flat as a\nshare of assets under management, well below prior peaks in investor enthusiasm, leaving\nample room for further participation. Structural tailwinds reinforce the opportunity. Since\ntaking office last fall, the Takaichi government has advanced a pro-growth fiscal agenda,\nwhile Japanese industrial companies supply critical materials used in the production of high\nbandwidth memory, a key component of the AI supply chain.\nBottom line: Japan offers growth momentum, accelerating earnings revisions,\nand record profitability without euphoric positioning. We believe this combination supports\na larger allocation to Japanese equities as a source of improving momentum outside the U.S.\nU.S. Large caps anchor portfolios, funded from tight securitized spreads\nU.S. large caps remain the quality anchor of our equity allocation. The S&P 500 leads major\nregions in year-to-date revisions to next-12-month earnings at 29.2%, and it posts the\nhighest interest coverage ratio at 9.4x. These fundamentals offer resilience against a\ncomplicated geopolitical backdrop.\nThe entry point has also improved. As real yields have risen, valuations have compressed,\nleaving the S&P 500\u2019s price-to-earnings multiple in the 29th percentile since 2020, while\nearnings growth sits in the 89th percentile. Valuation forms only one piece of our process,\nbut superior fundamentals at a better price strengthen the case.\nWe continue to favor large caps over small caps, and our conviction has strengthened as the\nFed has raised rates and tightened financial conditions. Over the past month, large caps\noutperformed small caps by more than 6.5%. Year to date, large caps now trail by just 0.9%,\nnarrowing the gap from 14% in June.\nWe fund these additions from securitized fixed income, and the decision reflects relative\nopportunity rather than a negative view on credit quality. In our view, agency\nmortgage-backed securities (MBS), which comprise the bulk of securitized assets, remain\nhigh-quality holdings with a role in diversified portfolios. However, agency MBS spreads\nstand at 37 basis points, near the tight end of their range since 1990, which we believe\nlimits the potential for further price appreciation (Figure 3).\nFigure 3: Tight MBS spreads offer limited compensation\nfor incremental risk\nThis chart shows the spreads of US Agency MBS since 1990.\nSource: Bloomberg as of September 25, 2026. Bloomberg U.S. MBS\nIndex used as proxy. Indices are unmanaged. An investor cannot invest directly in an\nindex. They are shown for illustrative purposes only and do not represent the\nperformance of any specific investment. Index returns do not include any expenses,\nfees, or sales charges, which would lower performance. Past performance is no\nguarantee of future results. Real results may vary.\nRate volatility adds to the concern. Rising readings on the MOVE Index, which tracks\ninterest rate volatility, have historically coincided with weaker MBS returns. MBS also\ncarry extension risk: when rates rise, prepayments slow and effective duration lengthens,\nincreasing sensitivity to further rate increases. Given our underweight view on duration, we\nreduced securitized exposure to benchmark weight.\nBottom Line: U.S. large caps combine superior fundamentals with a better\nentry point following valuation compression. We believe tight spreads and sensitivity to\nrate volatility make securitized fixed income a logical funding source for these\nhigher-conviction equity opportunities.\nKate Moore\nChief Investment Officer\nJP Coviello\nHead of Portfolio Strategy\nJeff Puckette\nMacro Portfolio Strategist\nConrad DeQuadros\nHead of Economics\nOlaolu Aganga\nHead of Portfolio Construction & Analytics\nSee our weekly CIO Strategy Bulletin for more details\nDownload\nCIO Strategy Bulletin\nCiti\u00ae Self Invest:\nEarn Up to $1,000\nwhen you fund a Citi Self Invest account and complete all\nthe requirements.\nLearn More",
    "author_name": "Kate Moore, JP Coviello, Jeff Puckette, Conrad DeQuadros, Olaolu Aganga",
    "site_name": "Citi Market Insights",
    "section": "Weekly Market Update",
    "publisher": "Citi",
    "ai_headline": "Following the Earnings: Where We Are Adding Equity Risk",
    "ai_simplified_title": "Citi Adds Equity Risk Following Earnings",
    "ai_excerpt": "Citi's Global Investment Council increased equity exposure in cybersecurity, Japan, and U.S. large caps, funding these additions from securitized fixed income. They highlight cybersecurity as a key beneficiary of AI adoption, Japan's strong growth and profitability, and U.S. large caps as a quality anchor.",
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