Citi's Chronert Expects 'Fundamental Broadening' in Markets

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00:00Scott, the bulls have come out for 2026, not just him, HSBC's Max Kettner writing this morning

00:06that he would be max bullish, max overweight going into 2026. Do you share the same enthusiasm for

00:12the new year? Yeah, so I do. We haven't published our full year targets yet for 2026, so we're still

00:19in print for only mid-year. But what I would say, the narrative that we've been building recently

00:24does kind of play into this. We've been on this broadening theme for some time. Essentially,

00:30the argument here is that as we go into 2026, we think the fundamental broadening across different

00:37sectors within the S&P is going to be an important part of the playbook that's going to be in addition

00:42to the AI tailwinds that we're seeing in tech. So essentially, as you think about next year,

00:49we're arguing a couple of things, Danny. One is that this MAG7 Elite 8 construct becomes more

00:56idiosyncratic. We've seen that behavior already this year. But what that is offset with is more

01:04of a cyclical rotation going into next year on the heels of further Fed rate cuts, ongoing economic

01:10growth improvement into next year, and a little bit lessening of the policy consternation that we've

01:17been facing. So all told, we think the setup here is pretty constructive going into 2026.

01:22And that includes going down cap into U.S. small mid-cap as well. Into small cap as well.

01:29We were talking about the fact that the Fed is getting maybe a little bit more hawkish. Does that

01:33worry you? No. I mean, the way this is setting up, Matt, is if you, okay, I get it. The S&P valuation

01:40construct is a constant source of conversation. But if you step back and look at it, this is really

01:46interesting. The large cap growth part of U.S. equities is the only part where you've seen

01:53earnings expectations rise through the year to where we're looking at stronger earnings growth

01:58now than we started the year. Everything else, including down cap, is a different setup. And

02:04here's where it gets really interesting. You can buy the S&P 600, for an example, at a nearly 10

02:11multiple term discount to the S&P with a growth convergence dynamic that suggests per consensus

02:18estimates that earnings growth in the small cap space is going to be approached that of large cap

02:24next year.

02:25All right, Scott.