Citigroup predicts the S&P 500 will reach 6,500 by the end of 2025, driven by earnings growth, a stable economy, and broader sector performance. However, they warn that the path to this target will likely come with more market ups and downs compared to the steadier market conditions of 2024.Citi expects returns in the mid-single digits, driven by earnings growth of about 13%, slightly below the 14% average forecast. They note that valuations are still high, meaning risks of market drops are greater than chances for big gains. Their optimistic (bull) scenario sets the S&P at 6,900, while their pessimistic (bear) case places it at 5,100.
One reason for their positive outlook is the ongoing “no cycle” economic environment. This suggests there won’t be typical economic slowdowns or upswings, thanks to the Federal Reserve maintaining a supportive stance and trends like AI boosting productivity.The report mentions that factors like a “soft landing” and AI advancements, along with policy promises from former President Trump, could impact markets. While Trump’s policies like tariffs might slow earnings in the short term, deregulatory and tax reforms could support long-term growth. Citi believes these policy effects will likely have only a small overall impact.
Volatility is expected to play a big role in 2025 as investors balance growth opportunities against risks. Citi predicts more market swings than this year, largely due to overly optimistic market expectations and high growth forecasts. They recommend investors use market pullbacks strategically, focusing on underperforming sectors and smaller companies. As the bull market enters its third year, Citi stresses the need for broader market participation beyond just the biggest companies (like the “Magnificent Seven”). Although these large companies have led the market rally, other companies in the S&P 500 are trading at historically high valuations. For prices to keep rising, these companies will need strong earnings to justify further price increases.
