Citi's Drew Pettit on Investing Playbook: Inflecting Growth & Cyclicals for 2025-2026

Citi's Bullish Investing Playbook

• 🎯 Citi maintains a bullish playbook with five key stock selection narratives.
• 💡 These narratives include: AI at a reasonable price, positive ROE trend, inflecting growth, return on growth capex, and high earnings sharp.

The Counterintuitive 'Inflecting Growth' Theme

• 📈 The most counterintuitive theme is 'inflecting growth', which focuses on cyclicals rather than the commonly discussed growth stocks.
• 📉 After three years of declining earnings (down ~20% from peak), the next couple of years are expected to show the best growth in these cyclical sectors.
• 🚀 This trend change in cyclicals is anticipated to be a catalyst for investor interest.

Key Data for Investment Narratives

• 📊 Investors should watch a mosaic of data on the consumer, holiday sales, and upcoming earnings reports.
• ⚠️ For cyclical and inflecting growth themes, the key is that macro data, while potentially weaker, does not hit recessionary levels, and companies can manage impacts like tariffs.
• ✅ If employment holds and spending is stable, earnings can look good by getting past the worst data.

Technicals vs. Fundamentals

• 🔬 Citi's themes are fundamentally based, not factoring in technicals directly.
• ⚡ However, price matters, and these themes are high beta, meaning investors should be willing to take on equity risk if they have conviction against a recession.
• 💰 Cash or fixed income allocations should be deployed into these higher beta themes, especially for pullbacks.

Redefining Defensive Investing

• 🧩 Traditional defensives are less effective in an up market; they help on pullbacks but recover slowly.
• 🧠 Citi's approach to defensives is to buy relatively attractive growth in relation to earnings volatility, exemplified by their 'high earnings sharp' basket, which includes compounders, not just low beta stocks.