Citi analysts maintain a strong belief that growth equities, represented by the Nasdaq-100 (NDX), present a more stable investment profile compared to small-cap stocks in the Russell 2000 (RTY). This article dives into the technical and fundamental catalysts causing their preference.

1. Superior Upside Potential

Over the last two years, NDX has not only outperformed advancements in the market but also experienced smaller declines during sell-offs when compared to RTY. Citi’s analyses indicate that for each 1% gain in the S&P 500, Nasdaq stocks rise by about 1.3%, while they lose just 0.8% on 1% declines. In contrast, Russell 2000 tends to amplify losses, showcasing growth stocks as defensive players during volatility spikes.

2. Earnings Forecast Changes

Small-cap earnings estimates have faced deeper downward revisions from a lower baseline compared to Nasdaq-100 EPS downgrades, which remain aligned with standard seasonal patterns. Investors commonly use tools like the FMP Ratios TTM Statement Analysis to monitor these shifts.

3. Macro Factors Favor Large Caps

Citi asserts that for Russell 2000 to outpace, the market would need an unlikely combination of positive economic surprises, lower interest rates, and a stronger U.S. dollar. Current data shows weak GDP forecasts and stable or declining currency values, indicating conditions that favor resilient, high-quality growth stocks.

4. Buffer Against Policy Risks

Tariff fluctuations adversely affect earnings estimates for companies with narrow supply chains. The Nasdaq-100’s focus on technology leaders allows greater scale to handle shocks to costs, unlike nimble small caps that may struggle.

5. Key Earnings Days on the Horizon

As earnings season heats up, monitoring the Earnings Calendar is essential for timely updates on tech giants like Apple, Microsoft, and Amazon to validate growth stocks’ resilience against 2025’s evolving economic landscape.