By Lewis Krauskopf
NEW YORK (Reuters) - The S&P 500 is poised for solid gains next year on strong earnings growth and a broadening of the stock market's rally, strategists at Citigroup said on Friday.
The bank's "base case" calls for the benchmark S&P 500 to end 2024 at 5,100, an 11% gain from current levels, Citi's Scott Chronert and his team said in their outlook report.
The index has gained nearly 20% in 2023, led by megacap tech and growth stocks, but "a broadening beyond 2023’s Growth leadership is necessary for further S&P 500 gains," the strategists said.
"All told, we are positive on U.S. equities premised on improving earnings growth, even as recession risk lingers," the Citi strategists said in their report, projecting S&P 500 earnings per share to rise 10.4% in 2024.
The strategists said they were expecting increased volatility but that "investors should be prepared to buy into pullbacks."
Risk of a recession is likely to persist as the effects of higher interest rates hit, the strategists said, but "ultimately, this should prove S&P 500 earnings have become less cyclically volatile through time."
"Our view is that the GDP correlation to S&P 500 EPS growth is lower than commonly perceived as the underlying economic sensitivity embedded in the index construction has lessened over the past several decades," the firm said in the report.
Citi also said that election issues will "come to the fore" as the year unfolds.
"Our concern is that fiscal restraint enters the 2025 picture either via higher tax proposals or lower spending as debt ceiling issues resurface," the strategists said in their report.