Small And Midcap Stocks Must Contend With Expectation Headwinds: Citi

In their latest study Citi analysts Scott T Chronert and Louis L Odette look at small and midcap stocks through the lens of earnings growth and across sectors.

“Against a backdrop characterized by valuations toward the higher end of historical ranges, but with trailing earnings growth near historically low levels, the earnings growth dynamic will become the critical variable determining SMID performance trends in 2014,” say Citi.

The authors point out that the YTD gain of 35%+ in the Russell 2000 (INDEXRUSSELL:RUT) took place against the backdrop of an expectation of 18-20% earnings growth, but the actual growth for 2013 is likely to be only 7-9%.

Heightened earnings expectations for small and midcap stocks

This “earnings expectation headwind” makes the gains achieved by...