Citi Raises S&P 500 Forecast for 2025 as AI Momentum Boosts Growth Outlook

Citi has upgraded its year-end 2025 S&P 500 target to 6,300, reflecting improved fundamentals and continued strength in valuations. This adjustment comes as part of the bank's increasingly positive outlook on the US stock market, particularly large-cap equities.

S&P 500 Forecast for 2025 and 2026

The revised S&P 500 forecast for mid-2026 now stands at 6,500, suggesting a potential high-single-digit return over the next 12 months. Citi’s outlook highlights long-term confidence in the resilience of US equity markets, even amid global economic uncertainty.

Growth Stocks Still Favoured as AI Trade Accelerates

Citi maintains a strong preference for growth stocks, especially those tied to the artificial intelligence (AI) sector, which continues to gain traction. The bank notes that AI-driven stock market growth remains a dominant theme, with corporate investment and innovation pushing valuations higher.

Whipsaw Market in Early 2025 Rebounds on Earnings and AI

The first half of 2025 delivered a volatile, “whipsaw” market, with initial flat expectations disrupted by tariff concerns in April. This led to a temporary downgrade. However, robust Q1 earnings and renewed investor confidence in AI-related sectors triggered a strong rebound.

Citi believes this rebound reflects corporate adaptability and fundamental stability, reinstating their original optimistic stance for the full year.

Revised Earnings Estimates for the S&P 500

Citi has raised its full-year S&P 500 earnings estimate to $261, up from $255, though still under both the earlier $270 forecast and the current consensus of $264. The upward revision is partly due to diminishing tariff risks and improved sentiment around valuation multiples.

S&P 500 Valuation Outlook: Can It Hold?

While acknowledging that the index trades at the higher end of its historical valuation range, Citi expects the S&P 500 to maintain a forward P/E ratio of around 21x. The firm also highlights a structural earnings shift from Cyclicals to Growth sectors, offering a new perspective for comparing valuations over time.

AI Stocks and Market Trends in Focus

Despite ongoing concerns around consumer spending, interest rates, and currency policy, Citi sees the AI investment trend gaining renewed momentum. This trend supports their bullish stance on growth equities and reinforces the positive stock market outlook for 2025 and beyond.

(Sources: investing.com, reuters.com)