Citi Forecasts a Volatile but Ongoing Bull Market for S&P 500 in 2026

Citi expects the post-pandemic bull market in U.S. equities to extend into 2026, though investors should brace for increased volatility along the way. In its latest outlook, the Wall Street bank characterizes the market environment as a “persistent but volatile bull,” highlighting that strong equity fundamentals continue to underpin the S&P 500 despite mounting valuation pressures and complex macroeconomic crosscurrents.

According to Citi strategists led by Scott Chronert, the S&P 500 should not be seen as a direct barometer of the broader U.S. economy. They argue that “Wall Street is not Main Street,” noting that global economic conditions remain broadly supportive for index-level earnings growth even as domestic challenges persist. This distinction forms the foundation of Citi’s earnings-driven framework for forecasting the benchmark index.

Under its base-case scenario, Citi sets a 2026 S&P 500 target of 7,700, supported by an ambitious estimate of $320 in index earnings. The bank also outlines a bull-case target of 8,300, assuming stronger-than-expected earnings growth and slightly higher valuations. On the downside, a bear-case scenario of 5,700 reflects the risk of earnings disappointment combined with multiple compression. Citi notes that upside surprises in corporate earnings, an accommodative Federal Reserve, and a favorable fiscal backdrop could help sustain elevated valuation levels.

A key theme in Citi’s outlook is the expected broadening of earnings growth beyond mega-cap stocks. While large technology-driven names remain crucial to overall index performance, the bank emphasizes the importance of the “Other 492” companies. These stocks exited an earnings recession in 2024 and absorbed tariff-related pressures in 2025, with forecasts now pointing to double-digit earnings growth in 2026.

Artificial intelligence remains central to Citi’s long-term bullish thesis, though with a more measured tone. The bank views AI as more than a speculative bubble, but cautions that rising investment intensity brings scrutiny around funding needs, return on investment, and labor market impacts. Productivity gains are seen as critical to sustaining the bull market narrative.

From a sector perspective, Citi is overweight Health Care, Financials, Information Technology, Energy, and Materials, while maintaining market-weight positions in Utilities, Industrials, and Communication Services. Consumer Discretionary and Consumer Staples are underweight due to demand sensitivity. At the industry level, Semiconductors, Software, Banks, and Health Care Equipment remain favored, reflecting a focus on earnings quality, productivity improvements, and return on invested capital.

On the macro front, Citi expects the Federal Reserve to move toward a neutral policy stance, with inflation risks seen as less pressing than labor market dynamics. While lower interest rates are supportive for equities, the bank flags potential tension between productivity gains and employment softness. Citi also anticipates that fiscal uncertainty from 2025 may ease, giving way to more stimulus-oriented policies as U.S. midterm elections approach.