Citi Research 5 December 2025 US Equity Strategy Size & Style Chartbook Scott T ChronertAC Managing Director scott.t.chronert@citi.com +1 415-951-1771 Drew Pettit Director drew.pettit@citi.com +1 415-951-1621 Patrick Galvin, CFA Vice President patrick.galvin@citi.com +1 212-816-5373 See AppendixA-1 for AnalystCertification, Important Disclosures and ResearchAnalystAffiliations Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covere ...

Uh the S&P 500 and NASDAQ hitting new highs uh this morning as the government shutdown is in its second day. Our next guest says the deadlock in Washington doesn't change his overall strategy, but he did make some moves uh for Q4, including lowering communication services to a market weight from overweight for the first time since 2023. Joining us now is Scott Croner, US equity strategist at City.Uh Scott, great to have you on here. So big picture, it feels as if I mean the constructive forces remain in pla ...

Market Overview & Small Cap Performance - Russell 2000 is the only index negative year-to-date [1] - Small caps have been struggling fundamentally due to an earnings recession [3][4] - Consensus expects a significant growth pickup in the second half of the year, but estimate revisions and guidance need to turn around for confirmation [4] Interest Rate Sensitivity & Fed Policy - Small caps are increasingly sensitive to rate risk, showing a record negative correlation with longer-term treasuries [6][7] - Bank of America economists are not expecting the Fed to cut rates this year, while the market is pricing in several Fed cuts, posing a near-term risk [5] - Higher rates for longer pose a bigger risk for small caps due to high leverage and short-term/floating rate debt [7][8] Potential Positives & Long-Term Outlook - Potential positives for small caps include the US-China deal, growth-positive provisions in the bill, and a slightly more positive ISM [2][3] - Long-term, there is potential for outperformance of small caps given valuations and multi-year themes like reshoring, peak globalization, and a capex cycle in the US [8] - Near-term selectivity is crucial, with better risk-reward in midcaps; focus on areas with better revisions, stronger margins, and avoid levered companies [9][10]

Market Overview & Potential Risks - S&P 500 achieved a strong quarter, up over 10%, the best since 2023, but uncertainty remains regarding its sustainability [1] - Potential for higher tariffs on countries failing to reach deals by July 8th and 9th could negatively impact the market [2][3] - Market anticipates accommodations on tariffs, believing the drama is overdone, but negative reactions are expected if progress stalls [4][5] - Historically, September and October often bring dramatic events, potentially creating buying opportunities [9] Fiscal Stimulus & Economic Impact - Expected passage of a bill providing 33 trillion or 23 trillion (depending on calculation) in additional deficit is seen as stimulative for the economy [7] - The stimulus, including lower taxes, is expected to benefit the economy and be reflected in the market [7] Technology Sector & Investment Strategies - AI is considered a promising area with long-term potential, but identifying specific winners is challenging [10][11] - Concerns exist about over-allocation to large tech companies and the growing risk associated with these large assets [11] - The industry suggests diversification and a focus on domestically oriented mid-cap and small-cap companies, which have lagged in the past 5 years [11][12] - Small cap companies have shown resilience, with the Russell 4000 outperforming the S&P since "liberation day" [14] Small and Mid-Cap Opportunities - Small and mid-cap areas are considered underinvested and offer potential for significant growth [15] - Investors lacking exposure to small and mid-caps are advised to consider adding them to their portfolios [15]