Citi Strategist Scott Chronert on Dovish Fed Bias and US Equity Outlook into 2026

Dovish Fed Bias and Soft Landing Narrative

• 💡 The current setup suggests a persistent accommodative bias from the Federal Reserve extending into 2026.
• 🎯 Post-shutdown data generally supports a soft landing narrative, with potential for further reductions in Fed funds rates towards neutral.
• 📈 This economic backdrop, combined with potential fiscal stimulus, creates a positive outlook for US equities heading into 2026.

Earnings Growth and AI Influence

• 🚀 Citi's earnings projections for 2026 are more aggressive, anticipating a persistent beat and raise from the mega-cap growth cohort, particularly those influenced by AI.
• 🧠 This positive earnings trajectory is supported by economic trajectories aligning with the soft landing scenario.

Cautionary Factors for the Market

• ⚠️ A primary concern is anything that could disrupt the AI trade.
• ❓ Another cautionary point is the uncertainty surrounding the soft landing narrative: the potential for it not to materialize.
• ⚖️ The market may continue to wrestle with the balance between productivity gains and labor conditions through the first half of the year.