Citi Keeps S&P 500 Target, Flags Rising Macro Risks

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Base, Bull, and Bear Scenarios for the S&P 500

Investing.com — Citi is keeping its year-end S&P 500 price objective at 7,700, reiterating a soft-landing framework but warning that a growing set of risks could undermine that outlook, according to a new research note.

Strategists at the bank said their central forecast is anchored on S&P 500 index earnings of $320 for 2026. They noted that this projection looked ambitious at the beginning of the year but now appears conservative.

Citi pointed out that bottom-up earnings expectations have moved higher, with consensus now at $321.3 following a fourth-quarter reporting period that delivered a solid upside surprise. That earnings season lifted full-year 2025 earnings estimates to roughly $276.

Alongside the base case, Citi mapped out wider valuation and earnings paths for the benchmark:

Geopolitics and Policy Threaten the “Goldilocks” Narrative

Citi emphasized that the most immediate challenge to its constructive view comes from developments in the Middle East. “The Iran conflict is the latest in a series of challenges to this view,” strategists led by Scott Chronert wrote, highlighting that sustained strength in oil prices poses a risk to overall consumption and could counteract the benefits of policy and fiscal support.

In addition to geopolitical tensions and energy-related concerns, the note underscored several other potential disruptors to the “goldilocks” macro backdrop, including risks tied to artificial intelligence, vulnerabilities in private credit, and unresolved tariff issues.

Earnings Landscape: Tech Leads, Broader Market Catching Up

Despite these macro headwinds, Citi argued that the earnings environment continues to provide a constructive underpinning for equities. The Information Technology sector was singled out, with earnings projections for 2026 having been raised by more than 11% since the year began.

The strategists said the group often referred to as the Elite 8 mega-cap stocks remains the primary engine behind upward revisions to S&P 500 earnings. However, they observed that the remainder of the index is now starting to contribute more significantly.

According to the note, the “other 492” companies in the index are projected to post low-double-digit earnings growth in 2026. This follows what Citi described as an earnings recession for that cohort in 2024.

Shifting Market Leadership and Breadth

Citi reported that leadership within the S&P 500 has changed meaningfully. From the start of the year through late March, the Elite 8 have declined by roughly 10%, while the rest of the index has managed a modest gain over the same period.

This marks a reversal from 2025, when the mega-cap group generated returns of about 25%, compared with approximately 14% for the broader market.

Beyond the S&P 500, small-cap and mid-cap benchmarks have also shown relative resilience, with those indices rising more than 3% and 4%, respectively, over the period cited.

Monetary Policy Outlook and Sentiment Gauges

On the macroeconomic side, Citi’s economists anticipate that the Federal Reserve will lower interest rates three times between June and September, each move totaling 25 basis points. Under that path, they expect the policy rate to end the year in a 2.75–3.0% range.

Their forecast envisions year-over-year GDP growth picking up modestly before easing in the latter half of the year.

From a positioning and sentiment perspective, Citi noted that its Levkovich Index has shifted to the upper portion of the neutral band, signaling neither extreme optimism nor extreme pessimism among investors.