Strategists at Citigroup Inc. warned that technical indicators point to a possible correction in the U.S. stock market, but investors should be ready to buy into any declines
"There are 19 out of 24 industry groups that are at or near overbought readings currently. Our strategy is to wait for pullbacks and buy into them," the strategists said, adding that since the beginning of November, the S&P 500 index has risen by 12.7% amid increased optimism that the Fed will begin easing monetary policy next year, while the economy avoids a serious slowdown.
Citigroup strategists predict that by the end of next year, the S&P 500 index will grow by 8.5% (compared with yesterday's closing level) and reach 5,100 points, which will be facilitated by “consistent” sector-level earnings growth and a broadening of the rally beyond mega-cap technology stocks. Against that backdrop, technology and industrials are among the overweight positions. Citigroup also raised banks to overweight, while retail and durables also moved to overweight.
“The implication is to expect volatility ahead, but with an eventual Fed pivot as a north star,” Citigroup said.
Earlier this week, Goldman Sachs strategists raised its 2024 S&P 500 target by 8% to 5,100, forecasting a tailwind for stocks from falling inflation and declining interest rates. Unlike 2023, the upcoming gains in the stock market will come from cyclical sectors and companies with smaller market capitalization, strategists said.