Citi expects the S&P 500 to rise nearly 13% at the end of 2026. Who will be the driving force?

Citigroup has set its target for the S&P 500 Index at 7,700 points by the end of 2026, which implies a 12.8% increase from current values. Analysts expect investments in artificial intelligence to remain the key theme of the year, but the focus will shift from "companies that provide AI solutions to their users" - that is, to companies that are able to integrate AI tools into their business practices and, as a result, increase their productivity, Reuters reports.

Citigroup published on Friday, December 12, the forecast, according to which by the end of 2026, the S & P 500 will have to reach a mark of 7700 points. The analysts justified their position by the steady growth in corporate profits of the index companies and continued investment in the field of artificial intelligence.

Citi expects AI infrastructure development to remain a key theme in 2026, but predicts a shift in focus from companies that build AI technologies to those that deploy them in their operations. "While the focus on AI will be sustained, the development will follow a 'winner vs. loser' dynamic," the strategists note.

Investors are being told by analysts to prepare for a "widening range of returns" by expecting positive performance next year in the value stock, cyclical and small-company sectors, MarketWatch wrote. Growth stocks, including bigtechs, "need continued outperformance and price appreciation to support earnings and valuations," the analysts noted.

Citi estimates that S&P 500 earnings per share will be $320 by the end of 2026, above the consensus forecast of about $310.

As the current bull market enters its fourth year, periods of volatility should be expected, experts also warn. Under an optimistic scenario, Citi expects the S&P 500 to reach 8,300 points by the end of 2026 and fall to 5,700 under a pessimistic scenario. Such estimates, Reuters points out, are comparable to the most "bullish" forecast on Wall Street, which was given by analysts Oppenheimer: they expect the S&P 500 to reach 8100 points by the end of next year. And also the forecast of UBS Global Wealth Management - in November, UBS analysts predicted the index target for the end of 2026 at the level of 7700.

The S&P 500 index has risen about 16% so far this year, despite fears of a market bubble and high valuations of technology companies, Reuters writes. Citigroup notes that this was helped by investor optimism about AI, solid corporate earnings and expectations of lower interest rates.

Citigroup's expectations for the S&P 500 for 2026 joined the wave of optimistic forecasts of other Wall Street analysts. In addition to the experts of Oppenheimer Asset Management, who set the highest target for the benchmark for next year at 8100 points (+18% from current figures), one of the most optimistic forecasts for the S&P 500 also released Deutsche Bank. Analysts predict that the US broad market index should reach 8,000 points by the end of next year. Goldman Sachs forecasts a more restrained growth, up to 7600 points, and JPMorgan - up to 7500 in the baseline scenario.

Most strategists expect the Federal Reserve to continue lowering interest rates into 2026. Lower borrowing has historically supported higher equity valuations and improved corporate financing conditions.

A November Reuters poll showed that analysts on average forecast U.S. stocks to rise about 12% by the end of next year. The S&P 500 closed on Friday, December 12, at 6827.41 points.

This article was AI-translated and verified by a human editor