S&P 500 Index is trading at record highs.
Since the U.S. stock index was just on the brink of a downturn two months ago, the market value has increased by approximately $10 trillion.
The market is still buoyant despite the looming threats, such as President Donald Trump’s upcoming tariff deadline, geopolitical tensions and economic uncertainty in the Middle East.
Kate Moore, recently appointed Chief Investment Officer of Citigroup Inc.’s Wealth Division, expressed this sentiment during a Bloomberg interview. She stated, “If I’m being honest, this rally has made me a bit uncomfortable.”
She highlighted several “warning signs” which, according to her, do not have a sufficient impact on investor sentiment, or receive enough attention.
Cracks in the system and changing expectations
Moore identified a key concern as the moderated expectations of corporate profits.
Bloomberg Intelligence data shows that Wall Street analysts predicted a 13% profit increase for S&P500 companies at the start of this year.
In less than six month, however, the forecast was significantly revised down to an even more modest 7.1%.
The composition of stock gains also indicates that the market is becoming increasingly concentrated around a small number of firms.
The standard S&P 500 Index is continuing to rise, thanks to the performance of large technology companies such as Nvidia Corp. Microsoft Corp. and Meta Platforms Inc. However, the equal-weighted index remains about 3% lower than the previous record it reached half a years ago.
Moore also expressed reservations over the apparent disregard of tariffs by the market. She previously served as the head of strategic thematics for BlackRock’s global allocations business worth $50 billion.
She also criticized the excitement surrounding potential interest rate reductions as being misplaced.
Economic headwinds and policy uncertainty
Moore says that as President Trump’s July 9 deadline for tariffs approaches, with little progress made on trade agreements, investors may be underestimating their financial impact.
She emphasized the significant role played by globalization in the expansion of margins observed over the last two decades. This implies that new tariffs will have an impact on companies.
Moore also cautioned that excessive optimism about interest rate cuts could be a sign of a greater slowdown in the economy.
She stressed that “a cooling overall activity” is not an ideal environment to take massive risks.
Bloomberg Intelligence’s data shows that Wall Street analysts expect the second quarter profit growth of S&P 500 firms to be at its lowest in two years. They predict it will only reach 2.8%.
FedEx Corp. recently warned of lower than expected profits for current quarter. This was attributed to ongoing trade war impact.
The data also shows that the U.S. consumer’s spending declined sharply in the first three months of this year, the slowest rate since the outbreak. This was mainly due to a steep decline in expenditures for services.
Moore is most concerned about a lack in policy clarity. He observes that, “the longer this uncertainty persists – the longer policy flip-flops continue and the wait-and see mileposts keep moving – the more companies will pull back their investment capital and staffing.”
Investment themes and strategic adjustments
Moore is confident that earnings in artificial intelligence and the technology sector will continue to grow.
The investment themes she mentions have shown resilience in all economic cycles.
She also believes that, despite a possible deterioration in the economic climate, U.S. companies with large capitalizations are “the best house available” when it comes to investment opportunities.
Moore, who joined Citi Wealth in 2007, has made several adjustments to its investment portfolios.
This includes a shift in assets from small to large companies, which is based on an expectation that the environment will be more difficult for smaller businesses, both with regard to growth and margins.
She revealed that gold was added to her portfolios as “ballast”, a way to stabilize the market and provide stability.
This post Citi Wealth CIO: Traders ignore warning signs on S&P500 may change as new updates are released
