When 91% of fund managers shout that US stocks are too expensive, Citigroup counters with a bullish research report: the bull market continues to play out, with the S&P 500 aiming for 6900 points.

The stock strategists at Wall Street financial giant Citigroup have raised their target point for the S&P 500 index, emphasizing that the important tax cuts in the recently passed "Build Back Better" act by Congress will be able to offset the negative impact of tariff policies on the growth of American companies. The Citigroup strategy team led by strategist Scott Chronert has raised the year-end target point for the benchmark stock index from 6,300 points to 6,600 points, indicating a potential increase of about 3% near the historic high closing point from last Friday, with expectations that it could rise to 6,900 points by the middle of 2026. In a report from another major Wall Street bank, Bank of America, over 90% of institutional investors surveyed stated that while they believe the U.S. stock market is overvalued, Citigroup's bullish report undoubtedly temporarily gives confidence to investors. Exceeding Wall Street analysts' expectations for the earnings season, especially for the "Big Six" companies that dominate the record-breaking S&P 500 index and the Nasdaq 100 index (with the performance of another giant, Nvidia, to be announced at the end of the month) surpassing Wall Street's expectations, as well as capital expenditures related to AI data centers significantly exceeding expectations, combined with almost no evidence showing that tariffs have a major adverse impact on earnings fundamentals, have led to further highs in the U.S. stock market this month. The so-called "Magnificent Seven" tech giants, which account for about 35% of the S&P 500 index and the Nasdaq 100 index, are driving forces behind the record highs of the S&P 500 index. These companies include Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's parent company, Meta Platforms. These stocks have been leading the entire U.S. stock market since 2023, benefiting from their strong market position, robust fundamentals, continuous strong free cash flow reserves, and expanding stock buyback programs. However, the high valuations of these giants have made Wall Street increasingly cautious, with six of the seven tech giants having expected price-to-earnings ratios well above the S&P 500 index's valuation of 25x, which is also near historic highs. According to analysts' expectations compiled by Bloomberg Intelligence, over 81% of S&P 500 index component companies have exceeded profit expectations, the highest proportion in the past seven earnings seasons. Citigroup's team of stock strategists stated that the S&P 500 index component companies have delivered an "impressive outperformance" in earnings season so far, and most of these companies have maintained their outlook for the second half of the year. Some companies even raised their full-year performance outlook. The results of the earnings upward revisions so far indicate that market consensus earnings per share (EPS) forecasts are trending higher. In this bullish report on U.S. stocks, Citigroup's strategy team has raised their earnings per share forecasts for S&P 500 index component stocks: from $261 per share for 2025 to $272, and from $295 per share for 2026 to $308. The strategists at Citigroup wrote that the higher profit forecasts have not led to substantial adjustments in their valuation assumptions. For longer-term prospects of a bull market in U.S. stocks, they predict that the S&P 500 index will rise to 6,900 points by the middle of 2026, an increase of about 8% from current levels. This bullish report from Citigroup indicates that the "long-term bull market camp" on Wall Street is growing. Before Citigroup raised its expectations for U.S. stocks, some market forecasters such as Michael Wilson, chief equity strategist at Morgan Stanley, had turned more optimistic towards the S&P 500 index, expecting strong profit growth from giants like Nvidia, Microsoft, and Google. Morgan Stanley had previously significantly raised its target price for the S&P 500 index to 7200 points, expected to be achieved by the middle of 2026. John Stoltzfus, chief strategist at Wall Street investment firm Oppenheimer & Co., raised the year-end target for the benchmark index to 7,100 points the highest S&P 500 index prediction among the strategists tracked by the institution, second only to the year-end target of 7,007 points expected by the Bank of America strategy team. Mary Ann Bartels, senior strategist at Sanctuary Wealth, known as the "Wall Street prophet," recently stated that artificial intelligence (AI) will drive earnings growth and push the S&P 500 index to new highs. She currently forecasts that by the end of 2025, the U.S. stock market will rise to 7000 points, a 12% increase from its current historic highs. Bartels points out that the winners in the U.S. stock market will continue to dominate. She is not concerned about the market concentration of large tech companies. Bartels wrote, "Profit growth is still relatively scarce, mainly concentrated in the technology and tech-related industries, industrials, finance, and utilities benefiting from accelerated electricity demand." About 91% of surveyed institutions believe that the U.S. stock market is overvalued, the highest proportion since 2001. Meanwhile, according to a monthly survey of institutional investors by another major Wall Street bank, Bank of America Corp., after a strong rebound from the yearly low in April and repeated record highs, a record proportion of fund managers believe that U.S. stocks are overly expensive. About 91% of surveyed institutional investors believe that U.S. stocks are significantly overvalued, the highest level since 2001. The Bank of America survey also shows that despite investors increasing their allocation to global stocks to the highest level since February, a net 16% of respondents are underweight U.S. stocks. Investors are betting that tax cuts and the upcoming interest rate cuts by the Federal Reserve will boost the stock market. They are largely seeking excess returns by chasing after mega-cap tech stocks, driving the concentration of returns in the S&P 500 to its most extreme levels in history. Just five large tech stocks have contributed to 68% of the benchmark index's gains this year: Nvidia, Microsoft, Facebook's Meta Platforms Inc., Broadcom, and Palantir Technologies, a leader in AI applications. Although most mega-cap tech companies have already reported earnings, the next "critical test" of this earnings season will be the earnings announcement from the "AI chip leader" Nvidia after the market closes on August 27th. Citigroup's strategists point out that the "Magnificent Seven" tech giants influenced by AI, as well as AI computing power leaders like Broadcom, continue to show strong earnings visibility and strong AI monetization capabilities. However, they expect the bull market in U.S. stocks to evolve in a market breadth diffusion similar to last year. Nonetheless, the Citigroup strategy team advises investors to closely monitor cyclical and macroeconomic driving factors. "Various policy-related distortions are gradually being factored into market earnings expectations in the first half of the year," said strategist Chronert and his team at Citigroup. "The expected path for further increases in the S&P 500 index requires the market leadership position of mega-cap tech stocks like Nvidia and Microsoft to be maintained, as well as continuous broadening of industry fundamentals and valuations to strengthen the bull market trend."