Citi reveals its top six investment themes for the rest of 2026

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Goldilocks and emerging markets outperformance

Citi research is heavily marketing a research report emphasizing the top investing themes for 2026,

“The performance of our trades from last year’s Investing in 2025 was strong. Of the nineteen proposed trades, twelve (63 per cent) were profitable from the time of the publication to their respective closes (or to mid December 2025 for the few trades where no watch/target levels were provided). Some of the trades had already been outstanding at the time the Investing in 2025 piece went to the printer, and performance from initiations of the trades was even stronger …

“Theme 1 Goldilocks. The performance of our trades from last year’s Investing in 2025 was strong. Of the nineteen proposed trades, twelve (63 per cent) were profitable from the time of the publication to their respective closes (or to mid December 2025 for the few trades where no watch/target levels were provided). Some of the trades had already been outstanding at the time the Investing in 2025 piece went to the printer, and performance from initiations of the trades was even stronger … Theme 2: A Dovish Fed. The unemployment rate will anchor the Fed … Theme 3: Higher Inflation Risk Premium … Inflation curve has steepened as front-end inflation expectations decreased in recent months … Theme 4: Early USD Strength. A return to stronger U.S. growth in early 2026: Short EURUSD … Upside risk to U.S. data in H1 2026. Cyclical factors (e.g., relative growth, relative rates) should remain the dominant driver of the USD over structural issues (e.g., central bank diversification, global trade fragmentation) as 2026 unfolds … Theme 5: A European Upturn … We remain constructive on European equities. Cyclical pickup is evident in improving economic data and broadening EPS. After flattish earnings growth in 25E, bottom-up analysts expect EPS growth to accelerate to 11 per cent in 26E, with a wide set of sectors contributing … Theme 6: Emerging Markets for the New Year … The positive risk and low volatility backdrop will continue to be tailwind for FX carry trades [selling lower yield bonds to buy higher yielding EM bonds] . Our preference has always been for relative (and vol-adjusted) EM currencies which offer more carry and less flight-to-quality risk than G10 majors. We continue to like the vol-weighted carry basket with a [countries producing] copper twist”.

There are two more themes - central bank policy dispersion and equity relative value within emerging markets - that are unlikely to interest domestic investors. For instance, one idea under central bank dispersion is to buy Norwegian forward rates versus Swedish rates.

Cloud winners

Scotiabank analyst Patrick Colville interviewed a major player in cloud spending, gaining insight into the winning stocks,

“We had the pleasure of hosting an expert call with the CEO of a cloud consulting firm with visibility into $5 billion of annualized public cloud spend across more than 1,000 customers. The tone of the conversation was positive, with the expert calling out a significant acceleration in commitments in 4Q for GCP, and followed by AWS. Commentary on Microsoft Azure was healthy, but lacking the sizzle of a big 4Q upside surprise. Oracle continues to be well placed as the 4th AI Cloud, but our take from this expert is that there wasn’t proof of an upward inflection in logo wins. This partner was sounding good on Datadog and Dynatrace, with no sign of heightened competition in observability. Competition has massively spooked investors over the last quarter, but we still feel good about our +ve view on DDOG and DT. This firm is seeing smaller AI companies use Cloudflare Workers to access accelerated compute, the expert believes that running inference at the edge makes sense. These comments we view as a nice +ve read for both NET and AKAM in 2026. Between Snowflake and Databricks, the expert called-out Databricks as doing well and (consistent with our broader fieldwork) the tool of choice for the big AI natives”.

More winners in the S&P 500

In a separate Scotiabank report, strategist Hugo Ste-Marie sees evidence of a broadening in U.S. market leadership,

“Our upper Chart of the Day highlights the rebound in the MSCI ACWI ex-US / S&P 500 ratio since November 2025, suggesting ex-US equities could continue to lead in 2026. Intensified legal attacks on Powell by the Trump administration could raise the U.S. country risk premium if investors perceive a threat to the Fed’s independence. This could reignite a soft “sell the US” trade that we saw post “Liberation day” in April of last year, with US yields rising, equities underperforming, and the US$ depreciating. While it’s still early, U.S. equities have already trailed ex-US equities by more than 110 basis points year-to-date. Meanwhile, EPS momentum has also started to shift away from US equities ... ex-US EPS have been keeping pace with those of the S&P 500 for several months now. A falling US$ and potentially slower economic growth could see ex-US EPS take back leadership for the first time since 2022/2023”.

Bluesky post of the day

Diversion

“Your Brain Is on Autopilot Two-Thirds of the Day, New Research Reveals” – SciTechDaily