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US Equities: Watching for Speed Bumps

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Even amid trade war fears, US equities have outperformed this year. Investors remain focused on strong earnings, low interest rates and generally strong economic fundamentals.

 

The US economy continues to grow solidly, and Citi analysts expect US EPS gains to lead the world, with tax cuts providing a solid portion of the rise in 2018. Overall, US EPS gains may approach a 20% rise in 2018, with a roughly 8% boost from corporate tax cuts.

 

However, sentiment is not in panic territory as it was for most of 2016 and it is no longer in euphoria either as it was in late 2017/early 2018. Thus, the downside risks are more muted, as is the upside opportunity.

 

 

At the same time, Citi continues to believe that economic weakness in many economies is transitory and exaggerated. The capacity for future EPS gains is larger outside the US, as recoveries have lagged well behind US progress to dates.

 

As such, Citi analysts maintain our neutral weighting on US equities and prefer Europe, Emerging Markets and Japan equities.

 

Within the US, Citi analysts continue to prefer cyclical exposure and value areas such as Financials and Energy over IT.

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