As the first-quarter earnings season approaches its conclusion, results have surpassed analyst expectations, with numerous companies delivering impressive beats. To provide insight into the market outlook amidst this ongoing earnings season, Citi's Head of US Equity Strategy Scott Chronert joins Catalysts.

Chronert reveals that "the bigger picture" he's focusing on from the first-quarter earnings is acceleration. He notes that this acceleration creates cash flow, freeing up "a lot of financial responsibility," which explains the uptick in share buyback programs enacted by companies.

Casting a broader view on the first-quarter earnings season, Chronert acknowledges that "it's not uncommon to see expectations come down." However, he points out that this dynamic often leads to positive surprises from companies, which he deems "nearly a given." Furthermore, since the consensus for the full-year target for the S&P 500 (^GSPC) hasn't changed, Chronert explains this dynamic as a "beat and hold" scenario, creating "ongoing fundamental tailwinds to support US equities."

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

This post was written by Angel Smith

Video Transcript

Well, first quarter earnings season is in that final stretch.And so far results have been far better than Wall Street had feared.One example of that company stepping up repurchases of their own shares for more on corporate America spending spree.We are joined by Scott Kroner, head of us equity strategy at city joining us in studio Scott.Thank you so much for coming in.So I want to start on these buybacks because as I mentioned, we've got Apple with a record breaking 100 and 10 billion.They got a company like bumble down over 30% year to date.They have 260 million in cash, 600 million in debt and they announcing buy back.So should investors be viewing all buy backs as created equal here?Well, I think to a certain degree, yes, the bigger picture here that we want to be attentive to in our view anyway, is that we're looking for an acceleration earnings growth this year.With that, we're expecting a significant increase in free cash flow generation.So we're looking for free cash flow for the S and P 500 to grow to the tune of 10% this year.And uh what that does, it frees up a lot of financial flexibility.Share repurchase is something that's been going on on an ongoing basis for several years.Our math is that on a net basis, the S and P aggregate share accounts been reduced by about a percent a year over the past several years, we think that trend continues.OK.So what this does it, it the, the, the the free cash flow improvement augments financial flexibility that leads to decisions between Capex dividend growth and repurchase.Many companies are viewing repurchase as a as a as a signal that they view their fundamentals as in a pretty attractive position looking forward.So Scott just zooming out also and just taking a look at earnings season.What we've heard from corporate America obviously, over the last several weeks, obviously, it has been a strong earnings season so far.But I'm so in terms of some of the guidance and the forecast numbers, what is that?Then?What does this set up look like for the current quarter?And then of course, the second half look at color is bullish on the S and P earnings outlook.Ok.So going into the quarterly reporting period, it's not uncommon to see expectations come down.So you get to a point where positive surprises are nearly a given.Ok.So the positive surprise dynamic with Q one earnings is not a surprise.Ok. First point, second point though is that when you look at what's happened with the aggregate consensus expectations for the full year, they haven't changed.Ok.So we call it a beaten hold.But what this does in turn, given, what we know or think we know about the economic condition right now is that we're going to be in a position for ongoing fundamental tail winds to support us equities as this year unfolds.Then what does that leadership look like?Well, OK, so here's the trick.So uh last year, we know it was all about mag seven.OK.It was an important con you know, contributor to the aggregate index return if you look at the performance off of the uh November lows, OK.It, it began to reflect broadening which has been a call of ours going back to last summer actually.And the view had been, we want to barbell growth and cyclicals.Well off November lows, you've had industrials and financials, right alongside tech.As a leadership year, you've seen energy perform quite strongly.My point is that broadening has been happening under the surface.Where does it go from here?This is somewhat controversial, but we are still of the view that we're going to get a fed pivot as we get in the middle part of this year, perhaps later in the third quarter.What that does is set up for the rotation to continue down a path of those parts of the market that should benefit from lower fed funds that's going to include consumer.Ok.So we've gone overweight consumer discretionary.We recently upgraded utilities from a long standing underweight to a market weight.We've upgraded staples.We've remained positive on banks.We've upgraded autos.My point is is that we've begun to shift our focus towards those companies that should benefit from a gradual reduction in, in short term interest rates.