Citi Wealth opens its 2026 outlook with a deliberate tone shift. This is not a call for reinvention, rotation, or dramatic asset-allocation upheaval. It is, instead, a defense of discipline.
As Kate Moore, Chief Investment Officer of Citi Wealth, writes in launching The Short and Long1, the platform is designed to help investors “navigate markets with more discipline and less noise,” applying a consistent framework to identify “the most compelling tactical and strategic investment opportunities along with their potential risks” .
That framing matters. Because the dominant message of Citi’s Q1 2026 outlook is not about what to abandon—but about what not to overthink.
Staying Grounded in a Noisy World
Citi’s first warning is behavioral.
“In investing, one of the most pervasive risks is ‘narrative fitting,’” the report notes—where investors anchor to a belief and selectively filter incoming data to support it . This is especially dangerous in an environment where policy, geopolitics, AI investment, and valuation debates are colliding.
Rather than forecast index levels or bond yields—a practice Citi bluntly dismisses as “not a great use of time”—the CIO team emphasizes process over prediction, evaluating markets through four lenses:
“Macro, fundamentals, sentiment and technicals, and valuation,” a framework designed to “cut through the noise to isolate signals” .
That process leads to a clear starting posture for 2026.
Portfolio Positioning: Balanced Risk-On, With Guardrails
Despite the temptation to “rotate with the new year,” Citi’s highest-conviction positioning remains unchanged:
- Balanced risk-on via equities
- Underweight duration
- Strategic exposure to gold as a diversifier
Crucially, this is not an expression of complacency. It reflects Citi’s assessment that the macro environment—while complex—remains fundamentally supportive.
As the report states plainly:
“We are not prescribing wholesale changes to asset allocation or massive rotations” .
Macro Reality Check: Resilience, Not Reacceleration
The macro story of 2025 was not growth collapse—but resilience under pressure.
Despite:
- Expansive U.S. tariffs
- Persistent G7 inflation
- Severe supply-chain disruptions
global growth slowed only modestly. Citi highlights that a trade-weighted measure of global GDP growth eased from 2.8% in 2024 to 2.6% in 2025, even as the World Bank’s Global Supply Chain Stress Index surged close to pandemic-era extremes .
The key stabilizer? Corporate profitability.
Citi is explicit:
“We believe corporate profitability is the key driver of economic growth,” because it governs investment, hiring, and ultimately consumption .
By late 2025, G7 corporate profits were up 5% year-over-year, balance sheets were resilient, and liquidity buffers remained historically strong—setting a solid foundation for early 2026.
Monetary and Fiscal Tailwinds: Lagged, But Arriving
Citi argues that early 2026 will feel the lagged effects of policy easing delivered in 2025.
- Real policy rates across advanced economies fell sharply
- Fiscal support is set to rise across the U.S., parts of Europe, and Asia
- U.S. households receive a direct boost from retroactive tax provisions under the One Big Beautiful Bill Act (OBBBA)
Taken together:
“We are constructive on the macroeconomic environment entering 2026—anchored by profits and bolstered by monetary and fiscal support” .
Challenging the AI-Only Growth Narrative
One of the report’s most important analytical interventions is its rejection of the claim that nearly all U.S. growth in 2025 was AI-driven.
Citi dissects the headline BEA data and shows that:
- Information-processing investment includes large non-AI categories
- GDP growth accelerated even as AI-linked investment slowed
- Consumer spending, services, and non-AI business investment all materially contributed to growth
The conclusion is measured:
“AI investment was an important pillar of U.S. growth in 2025, but AI-linked capital spending was not the sole contributor” .
This distinction matters for portfolio construction—especially when evaluating sector leadership.
Don’t Believe the Hype—But Don’t Fade Tech Either
Citi is blunt about what U.S. equity markets require in 2026:
“If you don’t believe mega-cap Tech can lead in 2026, then it is quite hard to be bullish on stocks” .
Mega-cap Tech and Communications account for:
- 53% of S&P 500 earnings growth
- ~40% of index market cap
Absent Tech leadership, Citi calculates that the rest of the index would need to deliver implausibly high returns to meet consensus expectations.
This leads to a core conclusion:
“We believe superior earnings growth and strong cash flow generation support Tech as a long-term core holding” .
Valuations: Elevated, But Not a Thesis
Citi’s most forceful philosophical stance is its outright rejection of valuation-based timing.
“We do not believe in using valuations as an investment thesis” .
The data support the claim:
- Near-term returns show near-zero correlation with starting valuations
- Over long horizons, most entry points prove to be good entry points
- High-multiple sectors have dramatically outperformed “cheap” sectors since the Global Financial Crisis
As Citi puts it:
“We believe investors should focus on anchoring to fundamentals instead of attempting to time entry and exit points based on multiples” .
Importantly, today’s elevated valuations are explained by:
- Index composition
- Record-high margins
- Strong earnings delivery
Not speculative excess.
Capex, AI Infrastructure, and Real Assets: Where Bottlenecks Become Opportunity
Citi identifies a powerful second-order effect of the AI and capex cycle: bottlenecks.
An aggressive global investment pipeline is expected to:
- Drive demand for natural resources
- Create supply constraints
- Benefit niche industrial suppliers and specialized labor
This underpins Citi’s constructive stance on real assets, especially as:
- Nominal growth remains strong
- Inflation stays sticky
- Geopolitical fragmentation accelerates government demand for hard assets
Citi explicitly highlights energy, metals, agriculture, food, and water as areas of structural demand—and links rising central-bank gold purchases to geopolitical risk management rather than cyclical speculation .
Europe vs. the U.S.: A Structural Divergence
European equities outperformed in 2025—but Citi argues the headline masks weak fundamentals.
The contrast is stark:
- 88% of U.S. equity returns came from earnings growth
- Only 13% of European returns were earnings-driven
Citi cites:
- Low productivity growth
- Demographic headwinds
- Rigid labor markets
- Cyclical sector concentration
As a result:
“The clear dichotomy between the two economies—fiscally, fundamentally, and compositionally—leaves us more optimistic on the U.S. generating more predictable and durable earnings growth” .
Risks on the Radar: What Could Break the Narrative
Citi flags three principal risks for early 2026:
- Higher-for-longer rates If the Fed holds steady amid resilient growth, rate-sensitive assets could reprice.
- AI investment disruptions Delays in data-center construction or debt-funding concerns could challenge sentiment.
- Trade-policy uncertainty A Supreme Court ruling against IEEPA tariffs could introduce fiscal and market volatility.
In each case, Citi emphasizes differentiation—strong balance sheets, pricing power, and real assets as stabilizers rather than blanket risk-off reactions .
Advisor Takeaways: What Matters Most
For Advisors
- This is a call for discipline, not drama
- Resist valuation-driven timing errors
- Focus portfolios on earnings durability and balance-sheet strength
- Use volatility tactically, not emotionally
For Investors
- Elevated valuations ≠ bubbles
- Tech leadership remains essential
- Real assets serve both inflation and geopolitical hedging roles
- Long-term equity exposure still favors patience over precision
Bottom Line
Citi Wealth’s Q1 2026 outlook is not about chasing what’s new—it’s about staying anchored to what works.
Or, as the report itself concludes:
“When companies continue to deliver growth, temporary valuation dips may present tactical opportunities” .
In a market full of noise, The Short and the Long makes a clear case: process beats prediction—and fundamentals still matter most.
Footnote:
1 Moore, Kate, et al. The Chief Investment Office Perspective: The Short and Long — 2026 Q1 Macro Investment View. Citi Wealth, Dec. 2025.
