Summary of Key Points from Citi Research Conference Call Industry Overview - The report focuses on investment strategies and themes for 2026, covering various asset classes and geographies, including macroeconomic trends and specific sectors like technology and commodities [4][5]. Core Themes and Trade Ideas 1. **Goldilocks Scenario** - A balanced economic environment with moderate growth and inflation is anticipated, leading to favorable conditions for equities [6][10]. - Suggested trades include buying S&P 500 Growth and S&P 600 Value against S&P 1500, with expected returns of +17% for S&P 500 Growth [23]. 2. **Dovish Federal Reserve** - Expectations for a more dovish Fed, particularly under new leadership, with potential rate cuts in the second half of 2026 [69][79]. - The unemployment rate is expected to dominate Fed policy, with core inflation projected to decline [70][71]. 3. **Higher Inflation Risk Premium** - Anticipation of a steepening inflation curve, with strategies to capitalize on this through specific trades [6][10]. 4. **Early USD Strength** - A forecast for stronger growth in the U.S. economy in early 2026, with weaker growth in Asia [6][10]. 5. **European Upturn** - A cyclical recovery in Europe is expected, with recommendations to rebalance policy towards MDAX over FTSE 250 [6][10]. 6. **Emerging Markets** - Continued carry in emerging market currencies is anticipated, with specific long positions recommended in BRL, MXN, and others [6][10]. 7. **Central Bank Dispersion** - Variability in central bank policies across different regions, with implications for currency and bond markets [6][10]. 8. **Equity Relative Value** - A focus on emerging Asia outperforming China, with specific equity baskets recommended [6][10]. 9. **LNG Oversupply** - Concerns over LNG oversupply impacting natural gas prices, with specific short positions suggested [6][10]. Important Data and Projections - **Earnings Growth Expectations**: - S&P 500 Growth is projected to see ROE improvement to 28.8% in 2026, while S&P 600 Value is expected to grow at a slower pace [12][13]. - EPS growth for Small Cap Value is expected to rebound sharply, nearly matching Large Cap Growth [15][16]. - **Aluminium Market Outlook**: - Aluminium prices are projected to rise to $3,300/t by Q4 2026, with a bullish scenario suggesting prices could reach $4,000/t by early 2027 [56][58]. Risks and Considerations - **Market Risks**: - Risks to growth trades include potential underperformance of AI buildouts and rising debt burdens [23]. - For cyclical trades, risks include weaker labor markets and recession-like conditions [23]. - **Credit Market Dynamics**: - The report highlights a robust M&A pipeline and the impact of AI on credit markets, with expectations for CDX HY to outperform CDX IG [42][45]. Additional Insights - **Liquidity and Sentiment**: - Current liquidity conditions are favorable for market growth, with sentiment indicators suggesting that bullishness has not reached extreme levels [25][31]. - Leadership in the tech sector remains strong, which is crucial for market performance as the bubble inflates [33]. - **Trade Implementation**: - Specific trade details are provided, including positions in SOFR contracts and CDX indices, with a focus on managing risk through strategic positioning [54][55]. This summary encapsulates the key themes, projections, and risks discussed in the Citi Research conference call, providing a comprehensive overview of the anticipated market landscape for 2026.

Summary of Key Points from the Conference Call Industry Insights - **US Exceptionalism and Asset Performance**: The theme of US exceptionalism, USD strength, and US asset performance has garnered significant attention. Since 2012, the MSCI World Index in USD has increased by over 3 times, while a leading Norwegian asset manager's Global Equity Fund (FX-unhedged) has seen a 7x increase, indicating a greater propensity for non-USD investors to diversify their portfolios [1][1][1] - **Decline in US Student Visa Applications**: There has been a steep decline in US student visa applications, with the rejection rate doubling. Conversely, UK student visa applications have increased by 20% year-over-year, and applications for UK citizenship from US citizens have surged by 26% year-over-year, with record applications in March and April [3][3][3] - **Investor Interest in Large-Cap Tech and AI Stocks**: Investor appetite for large-cap technology stocks has risen again, with notable outperformance of the Magnificent Seven (Mag7) compared to the S&P 500. There is also increased interest in perceived AI winners, with strategies focusing on long positions in AI winners and short positions in AI-at-risk stocks approaching new highs [5][6][6] - **Strong Q1 EPS Growth and Seasonal Patterns**: The first quarter has shown standout EPS growth, with continuous news on increased use cases and adoption of technology. There is no slowdown in spending or investment, as evidenced by recent news regarding Softbank and TSMC. July is historically the strongest month for Nasdaq returns, which has been frequently cited by analysts [8][9][9] - **Impact of Fiscal Concerns on Mega-Cap Tech**: There is speculation that mega-cap tech companies may benefit from an increasingly precarious fiscal situation. Higher interest rates typically imply a higher cost of capital, but companies with strong balance sheets and cash flows may become more attractive in uncertain economic conditions [5][10][10] Economic Activity and Market Performance - **Uneven Economic Activity**: The current trajectory of economic activity is described as unusually uneven, with a notable slowdown in German weekly activity and no rebound in US retailer imports following a collapse in April and May. The European economic surprise index has outperformed the US index, highlighting the complexity of the current economic landscape [11][11][11] - **European Equity Performance**: Despite the uneven macro data and the upcoming tariff deadline on July 9th, European equities have performed well year-to-date. However, the top five largest stocks in Europe have not contributed to this performance, with both LVMH and Novo Nordisk down over 20% year-to-date [15][18][18] - **Revisiting LVMH Investment Thesis**: The investment thesis for LVMH is being revisited, with a recommendation to buy despite being below consensus for the rest of the year. The diverging outlooks for brands in the luxury sector present a compelling alpha opportunity, contrasting with the performance of European big oils [20][20][20] Conclusion - The conference call highlighted significant trends in US and European markets, particularly in technology and luxury sectors. The ongoing geopolitical tensions and economic uncertainties are influencing investor behavior and market dynamics, with a focus on diversification and sector-specific opportunities.