Citigroup Says Keep Calm and Carry On Buying Equities

Citigroup Chief Economist Sees Two Fed Hikes This Year

Citigroup Inc. is looking to history to show the global equity rally could be far from over.

With the MSCI All-Country World Index up 24 percent from a low last February, similar gains since 1980 suggest it will jump at least 10 percent in the next year, Citigroup strategists led by Robert Buckland wrote in a note. Improving corporate earnings, rising bond yields and money flowing back into equity funds are combining to support another leg up for global stocks.

“Healthy market gains from current levels are consistent with the views of our strategists around the world,” they wrote in a note dated Feb. 9.

With the global stocks gauge now trading above its three-year average valuation, strategists are looking to predict what’s next and opinions are diverging: JPMorgan Chase & Co. last month said a rise in bond yields is essential for the stock rally to survive. For HSBC Holdings Plc, markets are getting expensive and there’s a lot of economic policy uncertainty, strategists have said. BNP Paribas SA kicked the month off saying that stocks are peaking.

Citigroup is using the historical road map to point out that in about three-quarters of the time after such rallies in the past, the index has gained between 10 percent and 15 percent in the following 12 months. Still, even Citigroup sounds a note of caution, warning that following gains of this magnitude, any second leg up does tend to be bumpy, with pullbacks of at least 7 percent in about three-quarters of similar rallies in the past.

“Remember that corrections can still happen,” they wrote. “Maybe political concerns could trigger this in 2017.”

Before it's here, it's on the Bloomberg Terminal.