Global stock markets could have further room to climb into 2027 despite mounting pressure from geopolitics and higher interest rates. Citi expects resilient corporate earnings to support additional gains rather than another expansion in valuations. Strong technology earnings and AI-related growth remain central to the bank’s outlook as markets approach record levels.
Earnings support gains
Global equities have risen about 12% so far this year, bringing the MSCI All-Country World Equity Index close to record highs and on track for a fourth consecutive year of double-digit gains. Despite elevated uncertainty, Citi currently views that strength as resilience rather than complacency.
Consensus forecasts point to global earnings per share growing 16% in 2027 after surging 35% this year, with technology responsible for much of the increase. Citi expects geopolitical risks to ease before year-end while global economic growth remains slightly below trend.
Strategists forecast roughly 6% further upside for global equities by the end of 2026, followed by double-digit potential across most regions by mid-2027. Valuations have already fallen around 15% this year, leaving the MSCI AC World trading at roughly 16 times forward earnings.
Risks remain ahead
Higher rates could still cause turbulence, particularly as the Federal Reserve begins raising borrowing costs. Historically, Citi noted, the first Fed hike tends to unsettle markets without necessarily ending bull runs, while higher long-term yields become easier to absorb when economic growth remains healthy.
Regional positioning remains selective, with Citi Overweight on the US, Japan, global IT and Materials. Europe excluding the UK and emerging markets remain Neutral, while Financials were downgraded to Neutral and Real Estate to Underweight.
Communication Services was upgraded to Neutral. Further escalation in the US-Iran conflict could favour the US, UK, commodities and defensive stocks, while Citi also sees the conflict delaying a broader market rotation. Near-term volatility nevertheless remains a risk as investors navigate geopolitical tensions, higher rates and the US midterm elections.
