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Banking giant Citi is revealing several plays for the US stock market as it believes that the economy will enter a period of sustained growth.
In a new CNBC interview, Citi US equity strategist Scott Chronert predicts that Fed rate cuts will catalyze a Goldilocks scenario for the US economy – steady growth, low inflation, low unemployment and stable rates without the threat of recession.
According to Chronert, the conditions will be favorable for three stock groups.
“As we go further down this Fed rate path, look ahead to the Q3 earnings setup, and then think about how we’re going to get into the end zone. Bottom line here, our view all year has been we want to be barbelled between growth as our leading call with a cyclical bias.
Now, as you go further down the Fed easing path, the cyclical bias begins to take on a different perspective. In this soft landing Goldilocks scenario, that’s where you can begin to go down into small- and mid-cap on the premise that you’re going to get more of an earnings recovery into 2026 as we get a little bit more Fed stimulus relative to the past two years of let’s call it earnings recession.”
But the equity strategist warns that the stock market may be overstretched for now, and a retracement is within the realm of possibility.
“So our point here is that we’ve run expectations pretty high. We think it’s going to be a pretty high bar for Q3 earnings to really deliver on. That said, pullbacks, we want to be aggressively buying into for what we think will be a very strong finish to the year.”
Overall, Chronert believes that the S&P 500 is in a position to sustain its uptrend.
“The bottom line is we think structurally the S&P 500 and its fundamental backdrop is in really good shape.”
As of Friday’s close, the S&P 500 is trading at 6,664.
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