A US equity strategist at Citi thinks a market rotation could soon give small cap equities a big boost.
Scott Chronert says in a new interview with CNBC that the artificial intelligence (AI) trade still remains attractive for now but advises a greater exposure in small non-AI companies.
“The issue here is less about conviction and earnings and more about the persistence of this AI infrastructure trade persisting, and that’s going to be an ongoing discussion. When we look at the market setup, it’s pretty simple. We want to have exposure to this Nasdaq component where the earnings momentum is so strong, but we want to barbell it with going down cap into small cap. It’s probably the most leveraged non-AI and broadening trade. The other sectors – industrials, financials, consumer discretion – they all have storylines that we can talk about, but we do think this down cap trade probably has some legs.”
The strategist also says his outlook is bullish for the S&P 500 into 2027.
“When we look at the aggregate S&P setup, we’re really comfortable with our ahead of expectation earnings outlook for this year. We’re at 350 [earnings per share] for this year. Consensus is 341. We feel very good about our 350 and it could be conservative – 400 for next year [is] certainly line-of-sight.”
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