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Investing.com -- Citi Research remains bullish on U.S. equities despite the market environment being challenging, the bank said in a note Wednesday.
According to the firm’s latest 2025 outlook, while the start of the year has been volatile, their positive view on U.S. stocks remains intact.
Citi had anticipated early-year volatility, which has now materialized, driven by a combination of soft landing prospects, artificial intelligence (AI) spending, policy concerns, and evolving tech disruptions.
Citi’s base, bull, and bear case assumptions for U.S. equities remain consistent, offering a framework for navigating current market conditions.
In particular, Citi highlights the importance of “positive Growth price action” for higher index levels, with a continued broadening of stock market leadership beyond mega-cap growth stocks.
"Earnings growth convergence supports broadening," Citi stated, emphasizing the need for increased participation from smaller-cap stocks and value sectors.
The analysts also underscore the importance of earnings growth and productivity in the current environment.
"Productivity improvement remains critical to fundamentals and valuation," Citi noted, indicating that operating leverage and earnings growth will be key drivers for stock performance, particularly given the current valuation landscape.
Citi’s outlook also factors in a “new Fed normal,” with expectations of a higher rate backdrop, which has not proven detrimental to U.S. equities historically.
The firm believes that the U.S. economy and stock market are evolving out of the pandemic-induced recession, with Trump and Fed policies only having a marginal impact on underlying fundamentals.
Despite the anticipated higher volatility in 2025, Citi sees thematic tailwinds, such as AI and policy developments, as opportunities to identify tactical alpha across sectors and individual stocks.