Citi sees a sudden recovery in the stock market through the end of the year
As recession fears circulate on Wall Street, Citi says corporate earnings may surprise many later this year.
It should follow the performance of the stock market.
Scott Kronert, chief strategist at Citi Scott Kronert, said in a new note to clients.
Chronert sees the S&P 500 rise about 8% from current levels to end the year at 4,200.
“We conclude that the rise in inflation that started around this time last year has mostly been progressively positive for earnings growth,” Kronert said.
“Simply put, strong prices have offset supply constraints and increased cost pressure. We do not expect a new structural model at this point, but we believe existing earnings tailwinds can continue in the near term.” The S&P 500 ended Friday’s trading session at 3,899.
To be sure, markets still reflect more caution in corporate earnings expectations than Chronert has conveyed. The S&P 500, Nasdaq Composite and Dow Jones industrials are off to their worst start in a year in several decades, and interest rates are rising faster than expected amid steady inflation.
Virtually no areas have been excluded from the market in the broader repricing of risk assets. Prices of previous high-volume releases such as Amazon (AMZN), Tesla (TSLA), and Netflix (NFLX) are down more than 30% so far in 2022. Apple (AAPL), often seen as a relatively safe haven, is down 18% in general.
Ten of the 11 segments of the S&P 500 are making losses this year, with only Energy (XLE) in the green year so far.
Earnings are also expected to be lackluster as the second-quarter earnings season approaches.
Estimated earnings growth for S&P 500 companies in the second quarter was 4.3%, according to data from FactSet. If that growth rate is multiplied, it would be the lowest annual growth rate reported by the S&P 500 since the fourth quarter of 2020. In addition, 71 S&P 500 companies have already issued negative earnings guidance.
“We expect there to be [earnings] disappointments, but we expect there will be some great surprises over the next few quarters,” Oppenheimer strategist John Stoltzfuss told Yahoo Finance Live on Friday, echoing Kronert’s sentiment.
Stoltzfus, one of Wall Street’s most ardent speculators, recently lowered its year-end 2022 S&P 500 target to 4,800 from 5,330.
Brian Suzy It is a comprehensive editor and Announcer at Yahoo Finance. Follow Suzy on Twitter Tweet embed and on LinkedIn.
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