Citi's Drew Pettit on Market Sentiment, Tariffs, and Tech Outlook

Market Sentiment and Tariff Impact

• 💡 The market has priced in some tariff risk, with a 500-point drop in the S&P 500, but not fully.
• ⚠️ A 10% tariff could result in a 5-6% hit to earnings this year, and current pricing does not account for ongoing concerns or tariffs exceeding 10%.
• 🚀 The market rally in recent days is attributed to a "wait and see" approach, with investors looking past negative news towards potential positive developments like deregulation and tax cuts.

Tariff Nuance and Market Reaction

• 🎯 The market's reaction to tariff announcements is often based on relief that the news is not worse than feared, rather than a deep analysis of the actual impact.
• 📈 While the S&P 500 may seem disconnected from Main Street, its forward-looking nature means it's reacting to the potential for a less severe outcome.
• 🚫 The current pricing does not account for a trade war spiral, especially if other countries' retaliatory tariffs are less severe than the US.

Earnings Per Share (EPS) and Future Outlook

• 📊 Citi's model suggests a 10% tariff increase leads to a 5-6% hit on EPS over 12 months, assuming retaliatory tariffs are half the level of US tariffs.
• 🔑 The hope for today is to achieve some resolution on potential points of maximum pain, allowing for a more stable market outlook.
• 📈 The market is looking for a resolution on the current pain points to move forward, with potential positive catalysts in the latter half of the year.