Citi has a bullish outlook for 2024 earning growth, expecting earnings to grow nearly 10 percent.

Citi US Equity Strategy Director Drew Pettit tells Yahoo Finance Live that when it comes to stocks, “It’s not about valuation anymore, it’s about earnings and fundamentals.”

Pettit sees tech's continued contribution to earnings growth but states plainly that “It’s all about broadening." Pettit believes that earnings growth will have to come from sectors beyond the Magnificent Seven to power stocks in 2024.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Drew, thanks so much for coming on. I know that you've got that bullish call there. But, obviously, we're seeing in the market moves this morning that just one name can change a lot of what's going on when there's so much market concentration. So given that news from today on Apple, is this finally the year where valuations and company fundamentals start to matter to the degree that we can see that drive this entire market?

DREW PETTIT: So I'm going to flip this around a little bit. Yes, valuations elevated. We hear that a lot. And you guys have had me on before. And you've heard our spiel on this that you can probably hold valuations where they are today, and maybe a touch lower. But, really, again, let's flip it around. It's not about valuation anymore. It's about earnings and fundamentals.

So if we feel like there's macro softness, if that feeds through to company softness, then you can have some weakness in the markets. But our base case is for earnings to grow almost 10%. And that's what's going to drive the market's gains this year in our view.

SEANA SMITH: So Drew, that's a pretty optimistic outlook then, if you are seeing earnings growth of about 10%. In terms of that leadership, where we are going to see the most strength, what are you expecting on a sector basis?

DREW PETTIT: So it's funny, tech is still going to contribute and all the tech-related names, of course. These guys have massive sales growth. That should translate into free cash flow and earnings growth as well. But what's going to start to contribute is, well, everything else. We didn't see that last year. We saw the cyclicals in an earnings recession. We actually saw defensives in the worst earnings recession they've seen on record.

So this year, we want to see the cyclicals kick in. We want to see the defensives kick in next. So it's all about broadening to us. So we're not moving higher on a few names this year. We think it's got to be a broader rally beyond just the big seven.

- Well, I know when you mentioned the sector movement here, you note that energy materials, health care have total upward revisions below 50%. So I'm curious what your thinking is on those sectors moving into 2024 here. Is this a scenario where there's nowhere to go, but up for these names?

DREW PETTIT: A little bit. So look, you just had somebody on talking about energy and the price movements there. So a lot of people are resetting the price tax on WTI and crude, in general. So expect it to see that pullback and revisions on the energy side.

On health care, you can have revisions come in a lot right now because the big biotech and pharma names are actually coming off a very, very low base for EPS. So while revisions are coming down, you're starting to see the earnings growth inflect off a very low base. To us, that should be more supportive of health care. And that's why we recently moved health care to a market weight in our sector calls.