Buy ‘first half pullbacks’ in the S&P 500, Citi tells its clients

Investing.com — In a note to clients on Monday, Citi analysts urged investors to seize opportunities in potential early 2025 pullbacks in the S&P 500, citing robust fundamentals and secular growth drivers that could deliver another year of double-digit earnings growth.

“Valuations and implicit growth expectations are setting a high bar for fundamentals in the year ahead,” Citi noted, emphasizing the optimistic outlook for S&P 500 companies navigating a “no cycle” macro environment. 

The bank adds that efficiency gains and secular tailwinds underpin Citi’s confidence, despite heightened market volatility.

The investment bank set a year-end 2025 target of 6,500 for the S&P 500, supported by an estimated index earnings-per-share (EPS) of $270. 

However, Citi acknowledged risks, including “less Fed easing” and “speculative asset bubbles.”

“Overall, this setup, plus the lack of real correction in some time, does leave the market more susceptible to increasing bouts of volatility,” Citi wrote. “If the fundamental story holds, we would be buyers of first half pullbacks in the S&P 500.”

Citi’s outlook highlights a balanced sector strategy for Q1 2025. The firm upgraded Health Care to overweight, joining Communications, Energy, and Financials. 

Conversely, Consumer Discretionary was downgraded to underweight, aligning with Industrials, Consumer Staples, and Materials.

Citi also emphasized a barbell positioning strategy to balance growth themes with cyclicals to address valuation and inflation risks. 

This approach is said to align with its broader thematic outlook, which prioritizes quality improvement driven by margins and operational efficiency.

The analysts concluded: “US equities continue to navigate an evolving post-pandemic paradigm. While inflation is mostly behind, higher price levels for goods and services present an ongoing challenge.”