The long-awaited rotation into small-cap stocks may be losing steam again as Citigroup doubles down on large-cap U.S. equities, arguing that artificial intelligence-led earnings growth continues to outweigh concerns about slowing economic momentum and elevated interest rates.
That could have implications for ETFs tied to the small-cap trade, particularly as investors continue favoring mega-cap technology and AI exposure.
According to GuruFocus, in a recent note, Citi said S&P 500 companies posted 27% year-over-year earnings growth in the first quarter, sharply ahead of earlier expectations for 14% growth.
The bank added that next-12-month earnings-per-share estimates for large caps have climbed more than 14% so far this year, supported largely by technology and AI-linked companies.
By contrast, Citi warned that smaller companies remain more vulnerable to high borrowing costs, weaker pricing power and margin pressure — a combination that could keep the widely anticipated small-cap rebound from fully materializing.
