Citi Research strategist Scott Chronert has set a year-end target of 8,100 for the S&P 500 index, an increase from the previous June forecast of 7,700. The bank attributes this upward revision to the earnings strength driven by companies linked to artificial intelligence.
AI-related firms currently account for slightly more than 50% of the S&P 500 index. Chronert emphasizes that reaching the 8,100 milestone requires a rally not only from these AI-focused companies but also from rate-sensitive sectors, which have declined by approximately 10% since late August.
The performance of rate-sensitive industries, including utilities, real estate, banks, and consumer discretionary stocks, remains tied to Federal Reserve policy. The Fed implemented a 0.25 percentage point rate hike on September 16, with another potential increase scheduled for the October 28 meeting.
Market analysts are closely monitoring capital expenditure reports from major cloud providers, known as hyperscalers. Investors are looking for sustained growth in cloud investment to support current market valuations, as a failure to meet these expectations could trigger a correction.
