Citi analysts see a delicate balance between recent market narrowing and potential future broadening.

"Markets narrowed substantially through 1H24," says Citi, but a softer inflation reading and a potential Trump presidency have shifted investor focus.

While some remain confident in a "soft landing," driven by the Federal Reserve's policy shift, Citi acknowledges counterbalancing risks. "From here, 'narrowing' vs. 'broadening' risks look roughly balanced," analysts wrote.

The bank explains that a stronger belief in a soft landing could see the recent rotation into previously lagging sectors (like small/mid-cap stocks) continue.

However, Citi highlights potential roadblocks, including a slowing US economy, persistent geopolitical tensions, and continued earnings upgrades in growth sectors.

Adding another layer of complexity, analysts state that a potential Trump re-election and its anticipated dollar strength could make it difficult for non-US equities to take the lead.

"Ultimately, we see the MSCI AC World around current levels by end-24," predicts Citi, with ongoing volatility a possibility.

Their medium-term outlook is more optimistic, targeting a 5% gain by mid-2025. This upside is based on solid earnings growth projections, with valuations expected to hold steady.

To navigate this environment, Citi suggests a global equity strategy balanced between growth/cyclicality and some defensiveness.

They are overweight the US and Japan, while upgrading the traditionally defensive UK to neutral. Emerging markets (EM) are downgraded to underweight due to their exposure to a potentially stronger US dollar.

Within sectors, the investment bank upgrades Communication Services to overweight, joining Consumer Discretionary and Financials. Industrials are downgraded to neutral, while Consumer Staples see an upgrade to neutral.

The bank concludes that key themes for investors to watch include the central bank pivot, the interplay between market narrowing and broadening, and ongoing political and geopolitical risks.