Thematic Equity Strategy_ The Good, the Bad, and the Ugly

Summary of Citi Research Conference Call Industry Overview - Industry: US Equity/Thematic Strategy - Date: 13 February 2024 - Analyst: Drew Pettit, Director, US Equity Strategy Key Points Market Outlook - Volatility Expected: The market is anticipated to experience volatility while remaining in a bullish trend [4][12] - S&P 500 Target: The S&P 500 is projected to have a fair value model that reflects current market conditions [4][12] Sector Recommendations - Overweight Sectors: - Health Care - Communication Services - Energy - Financials - Underweight Sectors: - Consumer Staples - Consumer Discretionary - Materials - Industrials [10][12] Thematic Investment Opportunities - Top Themes Identified: - Artificial Intelligence - Digital Leisure - FinTech - Video Gaming - Wearable Technology - Agricultural Demand - Fossil Fuels - Global Tourism - Pollution Solutions - Value Healthcare Spend [11][12] Earnings and Productivity - Earnings Upside: There is potential for earnings growth within the S&P 500, with a focus on maintenance versus growth capital expenditures [15][20] - Productivity Enhancement: Labor productivity is expected to improve, aligning with long-term forecasts [19][20] Market Sentiment and Risks - Lofty Sentiment: Current market sentiment is considered high, particularly within the NASDAQ-100 [23][24] - Rate Dilemma: Concerns regarding Federal Reserve interest rate policies and their impact on market dynamics [25][26] - Economic Cycle: The report indicates a lack of a clear economic cycle, which may affect S&P 500 operating leverage [27][28] Investment Strategy - Incremental Alpha: Emphasis on security selection frameworks to identify high-potential investments across various clusters [35][37] - Citi "Thematic 30": A recommended list of stocks that align with identified themes, showing strong performance metrics [40][41] Performance Metrics - Citi Thematic 30 Performance: Since inception on 5 January 2024, the thematic basket has outperformed the Russell 1000 index, with returns of 61.0% compared to 32.1% for the Russell [41][41] Notable Stocks Mentioned - High Growth Stocks: - Amazon.com (AMZN): 58.6% return since 5 Jan 2024 - Uber Technologies (UBER): 39.4% return since 5 Jan 2024 - DoorDash (DASH): 116.9% return since 5 Jan 2024 - Other Stocks: Include Marvell Technology (MRVL), Equinix (EQIX), and DocuSign (DOCU) among others, with varying returns [44][44] Additional Insights - Investment Banking Relationships: Citigroup has acted as manager or co-manager for several companies mentioned, indicating potential conflicts of interest [46][49] - Market Positioning: The report highlights the importance of positioning in high-quality, low nominal rate correlation stocks amidst interest rate uncertainties [36][37] This summary encapsulates the critical insights and recommendations from the Citi Research conference call, providing a comprehensive overview of the current market landscape and investment strategies.