As the S&P 500 navigates a potentially volatile 2025, Citi Research suggests that the Growth investment style is well-positioned to outperform, thanks to its low macro risk exposures and diverse sector tilts. Despite the current extended long positions in the U.S. equity market, which Citi notes are at a multi-year high, Growth's reasonable valuation and secular tailwinds make it a favorable choice. "Even with its recent strong performance, broad-based Growth style continues to carry low macro risk exposures," Citi analysts highlight.
The report underscores that the U.S. equity market is pricing in a "goldilocks scenario" of lower interest rates and narrowing credit spreads, yet warns of increased macro uncertainties, particularly concerning long-term interest rates. Price Momentum has been the best-performing style in 2024, but Citi expresses caution due to its positive exposure to 10-year yields. Meanwhile, Value factors have struggled, with cyclical E/P potentially benefiting from higher oil prices and rising yields. As the market braces for the new year, Citi advises a cautious approach, given the heightened risks and stretched market positioning.