Citi believes the S&P 500 can rise nearly 20% from current levels before the year expires, but not before going through a tumultuous period this month.
In a new CNBC interview, Citi US equity strategist Scott Chronert says the bank is holding its year-end target for the S&P 500 even as volatility increases amid an onslaught of negative news.
“We haven’t backed off on our year-end target, which is 7,700 for the end of the year. A lot has changed in the past three months since we put that out there, whether it’s the Iran conflict, whether it’s AI disruption, whether it’s credit concerns. The litany of issues has been very, very ongoing.”
Chronert highlights that underlying corporate performance has remained resilient despite the noise.
“On the flipside though, what has been very resilient are corporate fundamentals and so from an earnings picture perspective, things have been right on with what we’ve been expecting for the most part with what had been a fairly aggressive earnings outlook for the S&P 500 from the start of the year, from our perch has not been exceeded by consensus. So while all of this has been unfolding around the Middle East circumstances, under the surface, fundamental conditions have been resilient. That’s what drives the view.”
But the analyst notes that the market needs to deal with a convergence of bearish factors in the coming weeks, even though he believes that earnings reports will be strong.
“I would have said, prior to yesterday, April’s probably our maximum risk period. We need to get through this period in terms of de-escalation with Iran. But also in April, what do you get? Beginning today, is when you’ll probably see a lot of energy prices passed through other goods and services begin to kick in, sort of in the April timeframe.
You combine that with the earnings reporting picture, which is going to start in a couple of weeks. I completely expect a solid set of earnings reports, but with much more cautionary commentary by many corporate execs. We have to be prepared for that.
The last thing that we have to be aware of is that, given the drawdown in the markets, many analysts’ price targets for companies are going to look offside or too aggressive. So I wouldn’t be surprised to see some price target reductions as we go through the reporting season as well.”
Overall, Chronert says the market could witness more downside volatility this month before resilient fundamentals take hold.
“All of these conspire to April being a maximum risk period. But then on the other side of that, on the presumption that we get some resolution, take some pressure off of oil prices and yields, then I think the equity markets can continue down the path where we thought they would in terms of lots of drivers from the fundamental perspective.”
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