Citi analysts expect further upside for the S&P 500 during the second half of 2024, albeit at a slower pace compared to the first half of the year.
Analysts said Nvidia (NASDAQ:NVDA) and other Magnificent 7 companies “have contributed a disproportionate share” of S&P 500’s gains this year. Despite ongoing recession concerns, they remain constructive on the fundamental setup for the second half.
“Generative AI investment spending has exerted as a significant offset to more traditional macro concerns,” analysts said in a note. “Fundamental follow-through into 2025 should continue, although the current consensus for next year appears aggressive,” they added.
In its base case scenario, Citi’s 2024 year-end target for the S&P 500 is 5,600, compared to 4,300 and 6,100 in its bear and bull cases, respectively. For 2025, the Wall Street giant’s base projection sits at 5,800, which could surge to 6,400 in a bullish scenario. In contrast, the bear case targets a 4,700 level next year.
Rising more than 31% year-to-date, the Magnificent 7 stocks are responsible for 8.7 points of the index's 15.6% gain so far this year, Citi analysts noted. However, the rest of the index is still performing strongly, aligning with their expectations heading into the year.
Sector-wise, growth clusters, especially mega-cap tech, have been leading the performance. Cyclicals and defensives also show strong year-to-date performance, though they haven't kept pace with the growth cluster.
Looking forward, Citi analysts expect a broadening of earnings growth across sectors. They emphasize that getting the earnings trajectory right on the biggest contributors “is mission critical to index earnings math.”
Estimates for the cohort continue to rise, with the Magnificent 7 expected to contribute $51.30 of the S&P 500's 2024 EPS, adding $11 to index EPS year-over-year.