S&P 500 Index still on track to enjoy further gains despite geopolitical concerns – Citibank

Geopolitical tensions between Russia and Ukraine have greatly escalated during last week. The crisis will likely mark a new security paradigm for Europe and the US. Still, economists at Citibank remain confident in markets.

Future equity gains to be dependent on delivery of increased corporate earnings

“We think Fed is still on track to hike in March despite rising geopolitical concerns. Besides, we expect inflation to come down possibly by Spring 2022 and global economic expansion will survive into 2023 and beyond. When lasting slowdown in inflation becomes evident, the Fed might not surprise markets with greater hawkishness.”

“The crisis could accelerate the Unstoppable Trend of ‘Greening the World’ as EU could focus on developing renewable energy capacity to be more independent from Russia. Also, a peak in long-term US interest rates – perhaps coinciding with peak inflation – may generate a stronger immediate return environment for US growth shares.”

“We believe a future 9% gain in the S&P 500 to be roughly in line with EPS gains in mid to high single digits, a pace that requires continued economic expansion.”

“If energy prices do not collapse as they did at the start of the last Fed tightening cycle in 2014 – when crude oil fell 66% over two years – we would expect broad emerging equity markets to perform well and offer diversification to global equity portfolios.”