Purchase ‘first half pullbacks’ within the S&P 500, Citi tells its shoppers

Investing.com — In a notice to shoppers on Monday, Citi analysts urged buyers to grab alternatives in potential early 2025 pullbacks within the S&P 500, citing strong fundamentals and secular development drivers that might ship one other 12 months of double-digit earnings development.

“Valuations and implicit development expectations are setting a excessive bar for fundamentals within the 12 months forward,” Citi famous, emphasizing the optimistic outlook for S&P 500 firms navigating a “no cycle” macro atmosphere. 

The financial institution provides that effectivity positive factors and secular tailwinds underpin Citi’s confidence, regardless of heightened market volatility.

The funding financial institution set a year-end 2025 goal of 6,500 for the S&P 500, supported by an estimated index earnings-per-share (EPS) of $270. 

Nevertheless, Citi acknowledged dangers, together with “much less Fed easing” and “speculative asset bubbles.”

“General, this setup, plus the shortage of actual correction in a while, does go away the market extra vulnerable to rising bouts of volatility,” Citi wrote. “If the basic story holds, we might be patrons of first half pullbacks within the S&P 500.”

Citi’s outlook highlights a balanced sector technique for Q1 2025. The agency upgraded Well being Care to obese, becoming a member of Communications, Power, and Financials. 

Conversely, Client Discretionary was downgraded to underweight, aligning with Industrials, Client Staples, and Supplies.

Citi additionally emphasised a barbell positioning technique to steadiness development themes with cyclicals to handle valuation and inflation dangers. 

This strategy is alleged to align with its broader thematic outlook, which prioritizes high quality enchancment pushed by margins and operational effectivity.

The analysts concluded: “US equities proceed to navigate an evolving post-pandemic paradigm. Whereas inflation is usually behind, larger worth ranges for items and companies current an ongoing problem.”