Citigroup Inc. strategists anticipate that investor diversification away from U.S. equities will continue to drive global stock market gains in 2026, projecting a 10% increase for a benchmark global index. This shift is attributed to a growing convergence in earnings between the U.S. and other regions. Improvements in earnings per share are expected in non-U.S. markets, fueled by government spending in Europe, reflation in Japan, and widespread adoption of artificial intelligence.
Citi maintains that future equity gains will primarily stem from earnings growth rather than further expansion in valuation multiples. They expect Europe, excluding the U.K., to show the fastest earnings acceleration, from +1% in 2025 to +10% in 2026, while U.S. and emerging markets are forecast to sustain double-digit earnings growth. Citi's preferred sectors globally include technology, financials, and healthcare, with healthcare recently upgraded to "Overweight," while consumer-related sectors remain "Underweight."
Beata Manthey of Citigroup highlights that investors are increasingly allocating capital outside the U.S. due to elevated U.S. valuations and improving earnings momentum elsewhere. Citi predicts approximately 10% upside for the MSCI AC World index by year-end 2026, supported by a 'soft landing' macro environment, positive earnings revisions, and AI tailwinds. Bottom-up consensus forecasts indicate global earnings growth accelerating to +14% this year, up from +11% in 2025. U.S. equities are still the most expensive, trading at around 22 times forward earnings, and global equities are at the 90th percentile of their historical PE multiple.
Despite the stretched valuations, Citi views the 2026 outlook as constructive, with market leadership expected to broaden across regions and market capitalizations. However, risks remain if companies fail to meet earnings forecasts. The bank's equity strategy team recently raised its year-end 2026 S&P 500 target to 8,100, based on earnings forecasts of $350 per share in 2026 and $400 in 2027. While AI remains a significant driver, the market is seeing broader participation beyond initial AI beneficiaries, with improving economic data and earnings upgrades supporting cyclical areas. Citi expects roughly 6% upside for global equities by year-end 2026, underpinned by a global economic outlook of resilience, moderating inflation, and ongoing supply-side pressures.
