Navigating the Shifting Tides: Citigroup's Outlook for the Equity Markets in 2025

As the markets continue to navigate turbulent waters, Citigroup's head of US equity strategy, Scott Chronert, offers his insights on the equity outlook for the second half of 2024. With a keen eye on the labor market and a balanced perspective on the broader economic landscape, Chronert provides a comprehensive analysis that sheds light on the potential opportunities and challenges that investors may face in the coming year.

Unlocking the Secrets of the Equity Markets: Citigroup's Perspective

The Labor Market: A Key Barometer for the Fed

Chronert emphasizes that the labor market is a primary focus for the Federal Reserve, as the ongoing deterioration in this sector could have far-reaching implications. He notes that the concern is that this deterioration may perpetuate and feed on itself, leading to a more pronounced economic downturn. The Fed's response to these labor market dynamics will be crucial in shaping the trajectory of the equity markets in the coming year.Delving deeper into the labor market, Chronert highlights the nuanced nature of the current economic landscape. While some economic indicators are showing signs of bottoming around historic levels, other components are experiencing deterioration. This mixed bag presents a complex challenge for policymakers and investors alike, as they navigate the shifting tides of the economy.

Earnings Resilience: A Glimmer of Hope

On the earnings front, Chronert expects to see a broadening out from the dominance of Big Tech. He estimates that the Magnificent Seven, a term often used to refer to the largest tech companies, will post at least 20% earnings growth in 2025. Interestingly, Chronert also anticipates that earnings for the rest of the S&P 500 will broaden out, suggesting a more diverse and balanced performance across the broader market.This outlook for earnings resilience is a key factor in Chronert's assessment of the equity markets. He argues that the market is willing to price in this resilience, which he defines as a high single-digit rate of earnings growth in 2024, followed by another high single-digit rate of earnings growth in 2025. This potential for sustained earnings growth could provide a foundation for continued market performance, even in the face of broader economic challenges.

Navigating the Macro Landscape: A Delicate Balance

Chronert's analysis of the broader economic landscape paints a picture of a "pretty interesting balance." While many economic indicators are showing signs of bottoming around historic levels, there are also signs of deterioration in other components. This mixed bag presents a complex challenge for investors and policymakers alike, as they navigate the shifting tides of the economy.Chronert's assessment suggests that the equity markets will need to carefully weigh the various factors at play, from the labor market dynamics to the broader economic trends. Investors will need to stay vigilant and adaptable, as the landscape is likely to continue evolving in the coming year.

Unlocking Opportunities: Citigroup's Equity Outlook

Despite the challenges and complexities of the current market environment, Chronert's outlook for the equity markets in 2025 offers a glimmer of hope. His emphasis on earnings resilience and the potential for a broadening out of performance beyond the tech giants suggests that there may be pockets of opportunity for savvy investors.As the markets continue to navigate the shifting tides, Chronert's insights provide a valuable roadmap for investors seeking to navigate the uncertain terrain. By staying attuned to the labor market, the broader economic landscape, and the potential for earnings resilience, investors may be able to identify and capitalize on the emerging opportunities in the equity markets.