Pile into mega-cap tech stocks for the next 6 months as a recession is likely, top Citi strategist says

• It's time to pile into mega-cap tech stocks, according to a Citi strategist.
• A fourth-quarter recession should be "should be relatively favorable to tech," Stuart Kaiser told CNBC.

Investors should pile into high-growth and mega-cap tech stocks over the second half of this year because of the looming threat of a recession, according to a top Citigroup strategist.

Stuart Kaiser said Monday that he believes that the US economy is barreling towards an economic slump – but that environment "should be relatively favorable to tech", with limited returns available elsewhere on the stock market.

"You've got very high cash yields, you've got recession risks kind of in the background, and that's the main driver of people wanting to be in large-cap tech and growth stocks," Kaiser, who is Citi's head of US equity trading strategy, told CNBC.

"Essentially, there's a scarcity of growth and people are willing to pay a premium to be in them," he added. "So from our perspective, the key to unlocking that trade is you need growth to broaden out, which effectively means recession risks come down."

Citi strategists expect the US economy to have slipped into a recession by the end of the year.

The mega-cap growth stocks favored by Kaiser have already started the year on a tear thanks to the rise of AI and the Federal Reserve easing up on its interest-rate hikes.

A small group of names – including Nvidia, Meta Platforms, and Tesla – have powered the S&P 500 and Nasdaq Composite 13% and 27% higher respectively, despite many economists warning that a slump could be looming and US GDP growth slowing to just 1.1% last quarter.

"These are stocks that have stronger earnings per share momentum, have stronger revisions — there's a fundamental reason for this beyond just valuation," Kaiser said. "You put that all together and we're still comfortable being in that space."

Kaiser noted, however, that the current risk-reward ratio for these stocks doesn't look as good as it did a few months ago, before a strong start to the year gave way to a breakneck surge.