Citigroup analysts have raised their S&P 500 index target for the end of this year by 600 points to 4,600, a revision they said reflects the increased chances of a “soft landing” for the U.S. economy.
“Clearly, we are chasing the tape,” the analysts said in a Citi Research note Friday. “However, growing conviction in out-year earnings growth acceleration is a key point of differentiation.”
The S&P 500
SPX,
has seen a strong rally so far this year, finishing Friday at 4,582.23. That’s its highest closing value since April 4, 2022, bringing the index’s year-to-date gains to 19.3%, according to Dow Jones Market Data.
Citi also raised its mid-2024 target for the S&P 500 to 5,000, from 4,400.
“No doubt, these new targets will be perceived as chasing the year-to-date move in the S&P 500,” the analysts said. “They better reflect an evolving macro and fundamental backdrop.”
U.S. stocks have risen this year against the backdrop of a resilient economy and easing inflation, fueling investor hopes that the Federal Reserve may succeed in bringing down the elevated cost of living without causing a recession.
“The ability of the Fed to perfectly thread the needle is still questionable,” the Citi analysts said. The central bank has this year slowed the pace of interest-rate hikes, which are aimed at lowering inflation.
“The lagging impacts of Fed rate hikes to this point should be expected to be felt further into ’24,” the Citi analysts said.
But they also pointed to “stronger earnings growth” heading into next year, saying “we look to buy pullbacks to position for an earnings growth acceleration call in ’24.”
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