Rate-Sensitive Sectors Must Rally With AI for S&P 500 to Reach 8,100: Citi

For Citi's Scott Chronert, an S&P 500 climb to 8,100 requires strength from AI names and from rate-sensitive sectors alike. In his view, just one of those two groups is in good shape.

According to Chronert, who oversees U.S. equity strategy at Citi Research, AI-linked companies account for just over half of the benchmark. The third-quarter earnings period is now starting.

Can the Rate-Sensitive Camp Catch Up?

Back in June, Citi lifted its year-end target to 8,100 from 7,700, citing earnings strength driven by AI. As for AI, Chronert expects those profit tailwinds to persist across third-quarter results.

Chronert noted the opposite for rate-sensitive sectors: they have slid about 10% since the Federal Reserve's Jackson Hole symposium in late August.

Utilities, real estate, consumer discretionary names and, to some degree, banks are in that group.

He said a rebound depends on markets pricing some expected Fed rate hikes out. The Fed lifted rates by a quarter point on September 16, and another increase could follow at its October 28 meeting.

Chronert also cited the midterm elections as an obstacle the index has to get past before the year is out.

Matt Stucky, a senior portfolio manager at Northwestern Mutual, is meanwhile anticipating a favorable earnings season. The consensus, he said, points to earnings growth in the upper 20s year over year, compared with the low 30s in the second quarter.

Stucky added that valuation multiples — what investors pay for each dollar of profit — may drive stocks from this point. Federal Reserve policy, the 10-year Treasury yield, inflation and oil are inputs to that.

What If AI Spending Falls Short?

For Aya Yoshioka of Wealth Enhancement Group, the outlook hinges on what hyperscalers have to say about AI capital spending. Such firms are the large cloud providers that are expanding AI infrastructure.

Yoshioka is looking for last quarter's solid cloud growth and investment returns to carry on. If that does not materialize, a correction could come as investors reset their expectations for 2027.

“we need this broadening trade to come back to get to my 8100”

Scott Chronert — Citi's head of U.S. equity strategy.

Concentration emerged as a theme across the panel, whose members noted that the AI trade now touches about 50% of S&P 500 companies. Chronert's 8,100 target rests on that other half taking part.