Citigroup strategists indicated that robust fourth-quarter corporate earnings in the U.S. stock market, combined with improving profit expectations and market breadth, suggest a positive trend for equities this year.

A team led by Scott Chronert highlighted that strong Q4 earnings and accelerating sales growth further support their above-consensus annual outlook.

The team noted that full-year index-level profit expectations for 2026 remain stable, which is viewed as a positive signal.

Last Friday’s Supreme Court ruling on tariffs is expected to have a modestly favorable impact on corporate earnings, though it may also influence fiscal deficits—previous deficit projections had factored in over $400 billion in anticipated tariff revenue.

The report stated that a broadening rally among index components is underway, although some sectors, such as energy, have already outperformed expectations in terms of stock performance this year.

"Given the high weighting of the technology sector and its projected growth trajectory, the influence of artificial intelligence on index earnings calculations remains critically important," they noted.

The team also pointed out that uncertainty around terminal growth will continue to pose a challenge to valuations.

Nevertheless, clear, fundamentally driven tailwinds are expected to support the market this year.