Scott Chronert, Citi U.S. equity strategist and managing director, sees a "broadening theme" in markets in addition to the AI tailwinds in tech going into 2026 on "Bloomberg Open Interest."

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

Scott Chronert of Citi forecasts a 'fundamental broadening' in the markets for 2026, expecting gains to extend beyond the technology sector to other areas of the S&P. He notes that while large-cap growth stocks have led earnings expectations, small- and mid-cap stocks are poised to see growth converge with large caps, especially as the S&P 600 trades at a significant discount.

Chronert highlights that anticipated Federal Reserve rate cuts, ongoing economic growth, and reduced policy uncertainty could drive a cyclical rotation in the market. He maintains a constructive outlook for 2026, suggesting that the market environment will benefit from both AI-driven tech gains and broader sector participation.

Citi's Chronert expects 'fundamental broadening' in markets

Scott, the Bulls have come out for 2026. Not just him, HSBC's Max Kettner writing this morning that he would be max bullish, max overweight going into 2026. Do you share the same enthusiasm for the new year? Yeah, so I do. We haven't published our full year targets yet for 2026, so we're still in print for only mid-year. But what I would say, the narrative that we've been building recently does kind of play into this. We've been on this broadening theme for some time. Essentially, the argument here is that as we go into 2026, we think the fundamental broadening across different sectors within the S&P is gonna be an important part of the playbook that's gonna be in addition to the AI tailwinds that we're seeing in tech, okay? So essentially, as you think about next year, we're arguing a couple of things, Danny. One is that this MAG 7 Elite 8 construct becomes more idiosyncratic. We've seen that behavior already this year. But what that is offset with is more of a cyclical rotation going into next year on the heels of further Fed rate cuts, ongoing economic growth improvement into next year, and a little bit lessening of the policy consternation that we've been facing. So all told, we think the setup here is pretty constructive going into 2026. And that includes going down cap into US small-mid cap as well. Into small-cap as well. We were talking about the fact that the Fed is getting maybe a little bit more hawkish. Does that worry you? No, I mean, the way this is set up, Matt, is if you, okay, I get it. The S&P valuation construct is a constant source of conversation. But if you step back and look at it, this is really interesting. The large-cap growth part of US equities is the only part where you've seen earnings expectations rise through the year to where we're looking at stronger earnings growth now than we started the year. Everything else, including down cap, is a different setup. And here's where it gets really interesting. You can buy the S&P 600, for an example, at a nearly 10 multiple-term discount to the S&P with a growth convergence dynamic that suggests per consensus estimates that earnings growth in the small-cap space is gonna approach that of large-cap next year.

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Citi's Chronert expects 'fundamental broadening' in markets

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