Citi's Chronert Sees 9%-10% S&P Earnings Growth in 2025

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Bloomberg 19:47 · 8948 Views

Scott Chronert, Citi US equity strategist and global head of ETF research, discusses the state of US stocks in the post-election environment, the outlook for S&P 500 earnings in 2025.

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  • 00:00 Scott Kronert is U.S.
  • 00:01 equity strategist and global head of ETF research over at City.
  • 00:05 And Scott, that is the big parlor game right now.
  • 00:08 It's relatively decent earnings.
  • 00:09 Coming out of this earnings season or relatively strong economy,
  • 00:13 why is there any reason to think that market gains can't continue?
  • 00:17 Well, I think the only reason to think that it can't continue is that is one of time frames and and that is pretty, pretty simple.
  • 00:24 We're
  • 00:25 moving past the period of election uncertainty, which we think manifest in
  • 00:29 a lot of the hedge fund deleveraging activity that you're referring to in some of the previous charts,
  • 00:34 but to a period of policy uncertainty.
  • 00:36 So while we're still in this path where we're seeing
  • 00:38 nominations, nominees for various cabinet related positions,
  • 00:43 there's still an aura of uncertainty as to where actual policies are going to take us.
  • 00:48 So you need to have that frame
  • 00:50 of reference when we're looking at the current valuation set up, which is 24 1/2 times trailing 22 times forward,
  • 00:58 which is near the highest we've seen in the past 20, if not 30 years.
  • 01:02 So all told, there's a,
  • 01:04 there's a,
  • 01:04 an emphasis on a euphoric backdrop here that is going with a Trump probusiness
  • 01:10 dynamic at work.
  • 01:11 But still ahead is going to be
  • 01:14 the ability and the issue around navigating where some of these specific policy approaches ultimately take us.
  • 01:21 With some of those specific policy approaches and
  • 01:24 the potential negative effects,
  • 01:26 is that going to be more of an idiosyncratic story, meaning is it going to be sort of company by company or is that potentially going to be
  • 01:32 a broader market issue?
  • 01:34 It's a really good question.
  • 01:35 And I think that's what we're navigating right now.
  • 01:37 If you look at the sector performance since the election,
  • 01:40 it tends to align with the general direction of where investors are expecting this policy push to take us.
  • 01:47 So you've seen financials lead, you've seen energies lead quite notably, you've seen consumer discretionary.
  • 01:53 On the flip side, you've had
  • 01:56 areas that are more defensive in nature, healthcare staples
  • 02:00 to that degree, and even materials, all reflecting some of the broader concerns about where tariffs might take us,
  • 02:08 where tax policy might take us.
  • 02:10 And then the background, how one's thinking about the deregulatory effects that potentially come with this new administration.
  • 02:16 OK, so post election, it's all been about positioning for what we think a Trump administration will do in terms of policy.
  • 02:23 But what about the earnings?
  • 02:24 What has the earnings picture shown us
  • 02:27 in terms of what people were expecting and what was actually delivered?
  • 02:31 OK, so let's go through this, Scarlett.
  • 02:32 So you got the Q3 reports now mostly behind us.
  • 02:36 We got the beat and hold we were looking for.
  • 02:38 You had a fairly significant beat with Q3 results.
  • 02:41 OK.
  • 02:41 But generally speaking, full year 24 estimates didn't change.
  • 02:45 They're still around to 241 as of our latest reading.
  • 02:49 That's roughly flat as to where we were going into the Q3 reporting period.
  • 02:53 So Q3 upside led to Q4 downside, flat index earnings for the full year.
  • 02:59 When you look ahead to 2025, we've still in aggregate are seeing full S&P earnings
  • 03:06 expectations come down a touch, which is very normal this time of the year.
  • 03:11 All told, bottom line on this
  • 03:13 current consensus next year for up 14% S&P earnings, we're modeling something closer to high single digit 9 to 10% potentially.
  • 03:22 We're still leaving some room here for forward expectations to come down.
  • 03:26 This is before you factor in some of the policy effects,
  • 03:29 particularly around tariff potential.
  • 03:31 Absolutely.
  • 03:32 So where does that leave us in terms of who's doing the heavy lifting?
  • 03:35 Which sectors are doing the heavy lifting when it comes to
  • 03:38 earnings prospects?
  • 03:38 I mean, do we come back once again to the MAG 7 names?
  • 03:42 Yeah.
  • 03:42 So this is where it gets really interesting.
  • 03:44 So the MAG 7, you break it down, NVIDIA is still projecting somewhere around 40% plus earnings growth for next year, I'd say in the heels of their quarter.
  • 03:52 That's pretty visible.
  • 03:53 The rest of the MAG 7 we're talking up 20% and we got a a noticeable hot upward bump with
  • 04:00 Q3 results.
  • 04:01 The other 493 still still tapering lower here, right.
  • 04:05 So the way we're talking about it is that we want to be exposed via growth encyclicals barbell.
  • 04:11 But what's happening here is that MAG 7 cohort
  • 04:13 is becoming sort of your stable arena, right when you're looking for areas of uncertainty elsewhere in the market around policy implications.
  • 04:21 You come back to the visibility you get with the MAG 7.
  • 04:24 And that sort of comforting, if you will, has us in a position where we want to be continued holders of these names.
  • 04:30 But we're still, we're still thinking that the ultimate opportunity here is going to be a broadening thing
  • 04:35 as we push down
  • 04:37 and improving earnings growth picture for the bulk of 2025.
  • 04:41 I am curious though, I mean, what actually does diversification look like
  • 04:45 in this environment in these scenarios here?
  • 04:47 Because we talked about the gains we saw this year, particularly at the start of the year through the first six months and the concentration in Big Tech.
  • 04:54 And I know we've gotten some modicum of broadening.
  • 04:56 But as you know, Scott, there are still a lot of people kind of looking this gift towards.
  • 05:00 Mouth and saying this can't be real
  • 05:01 right, right.
  • 05:02 So you know, we look at it through
  • 05:04 a sort of a sector lens and the easiest way to express this is how we've we see sector setting up right.
  • 05:10 And as an example, we've been overweight,
  • 05:13 you know the combination of financials, energy,
  • 05:16 consumer discretionary,
  • 05:17 I mean even communication services going into Q4.
  • 05:20 So we're more or less aligned with where we think
  • 05:23 some of the
  • 05:24 the Trump policy platforms taking us.
  • 05:26 But where I want to shift the discussion.
  • 05:27 You mentioned earlier you look at US small midcap as an example and this is a part of the market that on a year to date basis has lagged the S&P.
  • 05:35 But you look back over trailing 12 months, it's actually performing right in line with the S&P.
  • 05:41 It's a great broadening.
  • 05:43 It generally aligns with where Trump policy platform is taking us.
  • 05:47 You have a much easier starting valuation starting point.
  • 05:50 And then if we're correct in the way consensus plays out for next year, you're going to get a narrowing in the earnings growth gap between small midcap and and what we what we're expecting in large cap.
  • 06:01 Yeah, I think a lot of people definitely agree with you or at least they hoping for that outcome.
  • 06:05 Scott have to leave it there.
  • 06:06 Have a wonderful weekend.
  • 06:07 Scott Kroner,
  • 06:08 U.S.
  • 06:08 equity strategist and global head
  • 06:10 of ETF research with.