Citigroup (NYSE:C) anticipates that the S&P 500 will reach 6,500 by the end of 2025, driven by earnings growth, a stable economic environment, and broad sector performance. However, the bank warns that the journey to this target is likely to be marked by higher market volatility, contrasting with the relatively stable conditions expected in 2024.

Citi’s base case predicts mid-single-digit returns, with earnings growth projected at around 13%, slightly below the consensus estimate of 14%. The bank’s strategists emphasize that while 2025 valuations appear stretched, the potential risks outweigh the benefits. Within this context, Citi outlines a bull case target of 6,900 and a bear case of 5,100.

A major factor bolstering Citi’s outlook is the continuation of a “no cycle” economic environment, which suggests the absence of traditional economic cycles. This scenario is supported by a favorable Federal Reserve stance and advancements in areas like artificial intelligence, which are expected to boost productivity.

“Ongoing soft landing conditions and AI developments are now interacting with policy promises and associated risks,” noted strategists led by Scott T. Chronert.

Despite these encouraging signs, the high starting valuations indicate that investors may already be pricing in expected improvements. This situation suggests that the potential for decline in the bear case is greater than the upside in the bull case, according to strategists.

Overall, 2025 is expected to experience significant volatility as investors assess growth opportunities against heightened risks. Citi anticipates more frequent volatility episodes compared to this year, driven by optimistic market sentiment and elevated growth expectations. The report advises investors to approach market pullbacks strategically, especially to reposition into underperforming sectors or mid- and small-cap stocks.

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