Citi sticks to 5600 year-end S&P 500 target as earnings wind down

Citi analysts have reaffirmed their bullish outlook for the S&P 500 , maintaining a year-end target of 5600 despite some moderation in growth expectations for the second half of the year.

This optimism follows a better-than-expected earnings season in Q2, where S&P 500 earnings grew by 10.5% year-over-year, surpassing the anticipated 8.1% growth.

According to Citi, the "Mag 7" group of tech giants, which includes companies like Apple and Microsoft, played a significant role in this positive performance, posting an impressive 38% year-over-year EPS growth.

However, they state that a crucial development was the positive contribution from the remaining 493 companies in the index, which collectively grew earnings by 5.1%, marking the first positive inflection in six quarters.

"Important nuances are that the upside is mostly attributable to the Mag 7 but with the other 493 now positively contributing for the first time in six quarters," said Citi.

Despite the strong Q2 results, Citi notes that second-half growth expectations have been "reined in modestly," with projections now pointing to a 10% year-over-year increase, down 2.1 percentage points from earlier estimates.

The investment bank remains cautious about rising unemployment and recession risks, which could impact the market, but they believe the lesser cyclical contribution to index earnings offers some protection.

"Recession risk has risen as labor markets exhibit some fraying at the edges. This poses some risk to the 2H earnings set up," they stated.

Citi also highlighted that the consensus for 2024 bottom-up earnings per share (EPS) remains consistent with their $250 estimate, supporting their year-end target.

However, they expressed some skepticism about the aggressive 15% growth forecast for 2025, noting that they model a more conservative high single-digit growth rate.

While there are nuances to consider, Citi's outlook remains optimistic, with their year-end S&P 500 target of 5600 still firmly in place.

Source: Investing.com