Lucy Baldwin on Global Diversification, Tariffs, and Market Outlook

Market Outlook and US Equities

• 📉 Citi Research has a neutral rating on US equities, reflecting a less risk-on approach entering the year due to concerns about slowing growth and struggling soft data.
• ⚠️ Q1 earnings expectations have been downgraded, signaling a potentially tricky earnings season ahead.
• 📊 The market's recent pullback is significant, but there's a debate on whether it has corrected enough given potential earnings downgrades.

Impact of Tariffs

• 🎯 The focus is on the effective tariff number, with a 10% rate seen as potentially good news compared to baked-in expectations.
• 📈 Rates above 15-20% could create a difficult environment for risk assets due to implications for equities, growth, and potential stagflationary risks.
• 💬 Market expectations suggest that even if high tariffs are announced, they might be reduced in scope or renegotiated over time, as seen in past instances with Mexico and Canada.
• ⚠️ The market may not be fully pricing in the magnitude of earnings downgrades that could result from significant tariff increases.

Global Diversification Strategy

• 🌍 Citi Research has upgraded Europe and China within their equity mix, preferring these regions over the United States.
• 🌱 Europe is seen as having opportunity for better growth than currently priced in, with potentially more resilient earnings growth.
• 🇨🇳 China is still viewed as having potential, particularly with the anticipated impact of stimulus measures.
• 🔑 Global diversification is highlighted as a crucial strategy at current market levels.