Citi strategists see the S&P 500 extending the bull run into the next year as earnings growth is expected to broaden from here.
According to Citi, the percentage of S&P 500 companies reporting positive year-over-year earnings growth is expected to increase, with fewer stocks likely to experience significant EPS declines compared to both 2023 and the 5-year average pre-pandemic.
“We continue to focus on the earnings resilience thesis despite lingering concerns about the economic outlook, which have been more acute of late given some softness in consumer-related reports and commentary,” the analysts said in a note.
“To us, the bottom falling out of S&P 500 EPS is a tail risk. A more resilient fundamental
backdrop should support a higher equity floor even if sentiment and multiples sour.”
While macroeconomic concerns, particularly around the consumer in the near term and fiscal impulses in the longer term, are anticipated to persist, the strategists suggest that the downside risk to index-level EPS in these scenarios may be more subdued than expected.
Citi highlights that the primary risk to equity markets lies in the multiple investors will assign to EPS, rather than the fundamentals themselves, particularly in the event of a clear recession.
The strategists suggest that investors may be inclined to buy pullbacks throughout 2024 if a stable fundamental backdrop persists.