Martin Baccardax

The S&P 500 could test its all-time high over the coming weeks, after closing north of the 6000 mark last Friday, as trade talk optimism megacap tech stocks drag broader markets into record territory.

Citigroup analysts, led by Scott Chronert, lifted their end-of-year target for the S&P 500 to 6300, a 500-point boost from mid-April estimate and a 5% increase from Friday's close. The benchmark's all-time closing peak of 6144 was set on Feb. 19.

The bank also set out notably wide parameters in its bull and bear cases for the index, however, with a 7000 upside target and a downside forecast of 5200.

Chronert and his team wrote in a report that the bull case could be powered by tech stocks tied to the artificial-intelligence boom and a "goldilocks" outcome for the world's biggest economy, while the bear scenario would reflect "a more-severe tariff policy outcome along with a mild recession risk.

Both outcomes, as well as the bank's central case, were tightly linked to the policies of President Donald Trump.

"In our 40+ years in the U.S. equity-market trenches, we're hard pressed to remember a period when presidential administration policy disruption has weighed as much on investor sentiment and fundamental expectations as it has thus far into '25," Chronert and his team wrote.

Trade representatives from the U.S. and China are meeting today at an undisclosed location in London, following a setback to an agreement reached last month by the two sides in Geneva.

Other trade talks are also reportedly in progress, notably with Japan, heading into the final weeks of the Trump's administration's 90-day pause on "Liberation Day" tariffs, which is set to expire on July 9.

On the macro front, the Senate continues to mark up the Republican tax and spending bill, expected to add around $2.4 trillion to the U.S. budget deficit over the next 10 years, while the bond market continues to reflect renewed inflation risks.

"Concerns regarding consumption trends, policy implications on rates/currency, with negative economic read through risk, all remain to be navigated," Chronert and his team said.

"On the other hand, the AI trade seems to be gaining renewed momentum as we move further past DeepSeek," they added. "Capex spend continues to support future growth while stock-buyback activity reflects strong cash flows and confident managements."

Shares of Microsoft, Meta Platforms, Amazon.com, and Google parent Alphabet, the leading AI hyperscalers, have all gained 10% to 19% over the past month, while shares AI-chip firm Nvidia has surged 21% bolstered by strong first-quarter earnings. The S&P 500 itself, meanwhile, has added around 6% over the same time frame.

Following a better-than-expected first-quarter reporting season that saw collective S&P 500 earnings rise 14% to around $534 billion, Citi sees full-year earnings for the benchmark coming in at $261 share. That is a $6 improvement from its prior forecast, but just shy of the LSEG consensus estimate for $264.

"The Q1 reporting period served as a reminder that corporates aren't taking policy volatility standing still," the Citi analysts wrote. "Contingency planning tends to be ongoing and provides some cushion relative to direct impacts.

"Longer term, existing and future (ie AI) technology enhancements should lessen historic earnings sensitivity to business/economic cycles, thus supporting higher multiples relative to history," the team added.

Write to Martin Baccardax at martin.baccardax@barrons.com

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June 09, 2025 10:34 ET (14:34 GMT)

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