Citi equity strategist Scott Chronert told clients the November 2026 midterm elections are a non-event for S&P 500 fundamentals but could slow the AI trade. The call separates an earnings base that looks insulated from Washington from a narrow, AI-concentrated leadership group that is not.
Election years usually force strategists to rewrite earnings models. Citi's Scott Chronert is telling clients not to bother — and to watch the AI trade instead.
"The vote is likely a non-event for S&P 500 fundamentals," Chronert, Citi's head of U.S. equity strategy, said in a note published Sept. 23, adding that election-driven uncertainty "could slow down the AI trade."
The distinction matters because the two things are no longer separable. The S&P 500's advance has been concentrated in a handful of AI-linked megacaps, so a rotation out of those names would register as an index event even if the underlying earnings of the other 490 companies never change. Chronert's framing splits the market into a broad earnings story that looks insulated from Washington and a narrow positioning story that does not.
That concentration is the transmission channel. When a small group of stocks accounts for a disproportionate share of index return, the index becomes a leveraged bet on sentiment toward that group rather than a diversified claim on U.S. corporate profits. Any signal that pushes portfolio managers to trim AI exposure — a policy headline, a tax proposal, a regulatory hearing — shows up in the headline index faster than it shows up in any earnings estimate.
The policy calendar supplies the raw material. Tax treatment of capital gains and corporate income, the shape of the fiscal spending package, and the direction of tech and AI regulation all sit unresolved ahead of the November 2026 vote, and each one touches either the discount rate applied to long-duration growth stocks or the revenue assumptions behind the AI capital-expenditure cycle. None of those outcomes is knowable yet, which is precisely the point: the market has to price a distribution of outcomes rather than a single path.
Chronert's call is a tactical one, not a structural one. A neutral view on fundamentals means no change to the earnings forecast; a drag on the AI trade means a change to how much of that forecast investors are willing to pay for today. Those two statements can coexist for months, and the gap between them is where sector rotation happens.
The read-across extends beyond Citi. Strategists at Morgan Stanley, Goldman Sachs and Bank of America have all published variants of the same tension this year — index-level targets that look reasonable on earnings, paired with warnings that the market's leadership is narrow enough to make those targets fragile. The debate is not whether AI capital spending is real; it is how much election-year noise the positioning around it can absorb.
For portfolio managers, the practical question is what would confirm or break the thesis. Confirmation looks like flat index-level earnings revisions alongside widening dispersion between AI-linked names and the rest of the market — the signature of rotation rather than repricing. A break would come from an actual policy proposal with numbers attached, at which point the earnings base stops being a non-event.
The next scheduled test is the vote itself, with the primary calendar running through the first half of the year and the first substantive tax and spending proposals expected to surface well before then. Until a proposal lands, the AI trade's sensitivity to election headlines is a positioning risk, not a fundamentals risk — and Citi is telling clients to treat it that way.
This article is for informational purposes only and does not constitute investment advice.
