Citi’s US Equity Strategist Says Firm Is ‘Incrementally More Constructive’ on Small- and Mid-Cap Equities Amid Fed Cuts and Fundamental Growth

A US equity strategist at Citi thinks market dynamics could soon begin to favor the small- and mid-cap (SMID) stocks.

Scott Chronert says in a new interview with CNBC that overall market fundamentals still appear “very solid” on the back of the artificial intelligence (AI) tailwind.

The equity strategist also argues that the SMID earnings recession is over.

“When we think of small/mid-cap, versus large-cap in particular, [they are] much more traditionally economically sensitive. Ideal time to own small-cap is coming out of a recession. We’re not there. We’re still looking at the soft-landing backdrop. But soft-landing plus lower Fed fund rates does begin to set this up. 

Now, fundamentally, I’d also make the point that small/mid has been in its own form of earnings recession in the past two years. With Q2 results, we had the first positive inflection in earnings growth in that two-year timeframe, and so we’re looking at that persisting going forward.

So a combination of traditional, historic lower rate sensitivity, combined with signs that we’re turning the corner in terms of the fundamental set-up, has us incrementally more constructive on the SMID space.”

Chronert does note that Citi is reducing its exposure to communication services stock from overweight to market weight.

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