Citi (C) has joined the growing chorus of Wall Street firms turning bullish on the S&P 500 (^GSPC), boosting its price target on the index to 5600 by year's end. Citi's Head of U.S. Equity Strategy Scott Chronert joins the Morning Brief to share his outlook on the market's trajectory.

Chronert attributes the S&P 500's upside run this year to three key factors: first, the outsize contribution of Nvidia (NVDA), which has single-handedly driven around 5 percentage points of the index's move to date; second, the 4% contribution from the rest of the "Magnificent Seven" tech giants; and third, the remaining 5% stemming from the other 493 constituents of the index. He notes that the S&P's gains have been primarily driven by "the mega-cap growth cohort" and continues to be supported by an "ongoing beat and raise dynamic."

However, Chronert voices a potential concern, stating, "I think, in general, what we're gonna see as we go into the Q2 reporting period, is a little bit more evidence that the lagging effects of Fed rate hikes to this point is starting to weigh on fundamental activity." Nonetheless, he adds: "In the meantime, we do think that this AI driver is gonna continue to spur a lot of activity."

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This post was written by Angel Smith

Video Transcript

Let's talk about Wall Street getting a bit more bullish here on the outlook for stocks.

A slew of big banks hiking their S and P 500 year end targets this week.

The latest is city city boosting its forecast of 5600.

That's up from 5100 here to discuss the latest call we wanna bring in Scott Croner.

He is a city's head of us equity strategy here, Scott.

It's great to see you again.

So much of this, I was going through uh your note out this morning.

Um Much of this being attributed to the outsized performance that we've been talking about of large cap tech.

So walk us through your thesis and why you think there's some more room to run here to the upside?

Yeah.

So I I think what's happened is that if you look at the S and P performance so far this year, let's say we're up 14% or so, you can really break that performance into three categories.

Um One is NVIDIA which has contributed to about 5% points of that of the index.

Move here to date, about 4% comes from the other uh of the mag seven and then about 5% from the other 493.

So really what's happened is a function of index waiting math is that you've had this unique situation where uh this mega cap growth cohort has been responsible for a big chunk of the index performance this year and notably, has been supported by an ongoing beat and raise dynamic, which has not been true for the other 493.

So where do we go from here?

Well, we think that the fundamental certainly for the second half of this year continued to be in very good place for this mega cap growth leadership.

So we expect a continued positive follow through from an earnings perspective there as as to the remaining 493 we're in the ok place.

Uh So far it looks as if a 6% earnings growth for that cohorts um in the carts.

But we think that there's room for that to broaden going forward, all told when you put all this together.

I think we're uh I I think on a pretty good footing here to take our target up to this 5600 level, which is relevant to uh $250 worth of index earnings.

And we give it about a 20 times 22 times pe and so when you think about and really kind of evaluate what the earnings and the guidance has looked like coming from companies going into, uh, and really once we finally kick off the Q two earnings season here, what are you gonna expect to hear from companies, especially as they're trying to best deliver to investors, what the demand, uh, situation looks like from their perspective that would actually contribute and deliver on some of those earnings promises.

Ok, so you've got two things going on and the first is what you were alluding to earlier in your program on the, on the retail sales data, right?

So I think under the surface, we think that there is a fraying around the edges on, on the economic condition.

If you go back and think about the Q one reporting period, most C suites were fairly constructive or let's call it cautiously optimistic regarding outlooks.

We're going to be watching that pretty closely.

I think in general what we're going to see as we go to the Q two reporting period is a little bit more evidence that um the uh the lagging effects of fed rate hikes to this point is starting to weigh on fundamental activity.

So we have to be aware of that.

In the meantime, we do think that this A I driver is going to continue to spur a lot of activity um on the investment side of generative A I and that should continue to feed through to a certain degree into the mag seven.

But we think that there's a broadening effect as well.

So on the one hand, you've got signs of fraying economic activity.

Uh On the other hand, we have this new growth driver in town.

The combination of the two I think is going to give C suites.

Generally speaking two ways to talk about this.

Yes, some concerns short term, but longer term, we think there are really interesting growth opportunities unfolding courtesy of uh this generative A I angle.