Investing.com -- Citi said it sees global equities extending gains on resilient earnings growth, even though a growing list of headwinds, including geopolitics and higher rates, raises the question of whether markets are showing resilience or complacency.

Strategists led by Beata Manthey said global equities have climbed about 12% year to date and sit just below all-time highs, putting the MSCI All-Country World Equity Index on pace for a fourth straight year of double-digit gains. While uncertainty remains high, the bank said it is "in the ’resilience’ camp for now."

Citi’s house view sees geopolitical risks subsiding before year-end, with global growth coming in just below trend. That sets up decelerating but still-solid earnings growth in 2027, which the strategists said can support further gains. Consensus expects global EPS growth of 16% in 2027, after 35% this year, with Tech accounting for the bulk of it.

The bank forecasts gains of about 6% for global equities by year-end, with double-digit upside across most regions by mid-2027, "supported by earnings growth rather than multiple expansion." Valuations have de-rated about 15% this year, leaving the MSCI AC World at around 16 times forward earnings, in the 74th percentile of its 25-year history.

The strategists said the first Fed hike "causes markets to wobble but rarely ends bull markets," adding that higher long-end yields are easier to digest if economic growth holds up. Citi economists see global resilience as "firmly intact."

The "broadening trade" may stay on pause until the U.S.-Iran conflict is resolved, the strategists continued, but they continue to recommend a barbell of cyclicals and growth. Near-term escalation would favor the U.S., the U.K., commodities and defensives.

Citi kept its Overweight stance on the U.S., Japan and global IT, where earnings momentum and AI-driven growth are strongest, and paired those with an Overweight in Materials. Europe, excluding the U.K., and emerging markets stay at Neutral. Citi downgraded Financials to Neutral and Real Estate to Underweight, and upgraded Communication Services to Neutral.

The bank acknowledged plenty of reasons to expect near-term volatility, including scope for geopolitical escalation, the usual wobbles around the start of hiking cycles, and the midterm elections.

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