Citigroup: If US stocks continue to decline, cash flow allocation may shift from capital expenditure to share repurchases.

Over the past two weeks, the S&P 500 index has fallen 6% due to uncertainty and risk associated with the impact of Trump policies and weaker macroeconomic data. citigroup believes that the implied growth expectations indicate little room for error in the short term. However, the analysis of the S&P 500's capital expansion and buyback trends supports its constructive structural view of the index. If US equities weaken further, the cash flow allocation may gradually shift from capital expenditure to buybacks.Citigroup notes in its research report that if the S&P 500 index falls 10% from its high on February 19, it would reach a level of 5500 points; this would provide an attractive risk/reward backdrop relative to Citigroup's current base forecast of 6500 points. Of course, the focus of the debate is on the impact of tariff interpretations on earnings.Cash flow is king, and the current consensus is for continued growth in index cash production. While size and sustainability may be a targeted discussion, the current direction should imply good financial flexibility this year. Capital expenditure status: After a 14% increase in capital expenditure in 2024, the current capital expenditure is expected to increase by 14%. The continued improvement in capital expenditure growth provides long-term fundamental confidence. Meanwhile, the top 25 capital expenditure contributors in the S&P 500 are expected to account for over 50% of the index's expenses.Repurchases drive de-leveraging. Repurchases of the total index level are slightly above $900bn in 2025. Citigroup expects this to be feasible in 2025. If US equities continue to come under pressure, a $1tn buyback size is not impossible. Overall, the fully diluted number of S&P 500 stocks continues to decline, supporting Citigroup's de-leveraging theory.