Stock market growth set to broaden in medium term - Citi

Investing.com -- Equity market growth is in position to broaden outside of a narrow group of stocks in the medium term, analysts at Citi have predicted.

Particularly in U.S. stock markets, the so-called "Magnificent 7" group of companies -- Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google-owner Alphabet (NASDAQ:GOOGL), Facebook-parent Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN), and Tesla (NASDAQ:TSLA) -- have surged over much of the last 12 months. They alone accounted for roughly 40% of the benchmark S&P 500's total return so far this year, the Citi analysts said.

In Europe, meanwhile, three firms -- luxury giant LVMH, semiconductor supplier ASML (AS:ASML), and drugmaker Novo Nordisk (NYSE:NVO) -- have made up the majority of gains.

"While this doesn’t necessarily pose a risk to our constructive outlook on global equities, it brings our broadening thesis back to the fore," the Citi analysts said.

In a note to clients on Friday, they projected that annual earnings will expand across all major regions -- apart from Australia -- and all sectors excluding energy. Overall, global returns are seen increasing by 9% this year, just under consensus forecasts of 11%.

They added that this trading environment will favor cyclical companies, or stocks that tend to rise and fall with the performance of the wider economy. Of these stocks, the Citi analysts said they prefer industries like technology and industrials, as well as financial services.

"Ultimately, equity performance in [20]24 is likely to be about earnings delivery," the Citi analysts said.