Citi's recent downgrade of its equity outlook for the S&P 500, from +2 to +1, has introduced a cautious tone to the market as investors brace for potential tariff uncertainties and inflationary pressures. The downgrade comes ahead of the U.S. presidential inauguration, adding to the market's apprehension. Despite the U.S. economy's expected outperformance, Citi's analysts warn of a choppier 2025, with broad tariffs potentially impacting global growth and inflation. The Federal Reserve's anticipated delay in rate cuts until May to manage inflation risks further complicates the investment landscape. While Citi remains optimistic about U.S. small caps and sectors like tech and banks, the overall risk/reward profile for equities appears less favorable compared to 2024.
The Vanguard S&P 500 ETF (VOO) has responded to these developments by rising 0.75% to $548.33 as of 10:00 AM on Friday, January 17.