Investing.com -- Citi maintained its overweight rating on equities in a note Friday, telling investors it would use any weakness ahead of the U.S. midterm elections to add exposure.

The bank said it argued a month ago that a top in equities was unlikely, given sentiment was not stretched, liquidity was benefiting from Fed hikes becoming less likely, and its warning indicators had not triggered.

"Since then, the news flow has remained positive on balance, and we therefore keep the overweight," Citi wrote, noting both U.S. and global earnings revisions indices have moved higher.

Liquidity concerns have become more contained, the bank said, pointing to this week's move by the U.S. Treasury to stabilize the back end of the curve. While it is not clear whether the action will prove sufficient, Citi stated that it should at least reduce fixed income volatility, which tends to matter more to equities than outright yield levels.

The bank continues to favor the U.S. in relative terms after cutting its emerging Asia overweight in early July, reflecting some uncertainty around the "picks and shovels" theme in AI.

Even if the SOX index is only in a bear market rally, Citi analysts said sector rotation would meaningfully limit downside.

Still, they prefer to add risk on a pullback, attributing recent hesitancy to "AI indigestion" rather than rates. "There is typically a pullback ahead of the midterms," the bank said. “This is usually an opportunity to buy, though, as the year-end performance tends to be quite strong. We would add additional risk on a dip.”