When 91% of fund managers say U.S. stocks are too expensive, Citigroup issues a bullish report: the bull market continues, and the S&P 500 is set to hit 6,900 points

According to the Zhitong Finance APP, stock strategists at Wall Street financial giant Citigroup have raised their target level for the S&P 500 index, emphasizing that the significant tax reduction measures in the recently passed "Inflation Reduction Act" will offset the negative impact of tariff policies on the performance growth of U.S. companies. Led by strategist Scott Chronert, Citigroup's strategy team has increased the year-end target for the benchmark index from 6,300 points to 6,600 points, indicating a potential increase of about 3% from last Friday's historic closing high, with expectations of reaching 6,900 points by mid-2026. In a report from another Wall Street giant, Bank of America, which showed that over 90% of surveyed institutional investors believe U.S. stocks are overvalued, Citigroup's bullish report on U.S. stocks undoubtedly temporarily boosts investor confidence.

The earnings season has exceeded Wall Street analysts' expectations, especially with the overall performance of the "Big Six" that dominate the historically high-weighted S&P 500 and Nasdaq 100 indices (another giant, Nvidia, will announce its earnings at the end of the month) surpassing Wall Street expectations, along with capital expenditures related to AI data centers significantly exceeding expectations. Additionally, there is almost no evidence showing that tariffs have a significant adverse impact on performance fundamentals, driving the U.S. stock market to new highs this month.

The so-called "Magnificent Seven," which includes the seven major tech giants that account for a high weight (about 35%) in the S&P 500 and Nasdaq 100 indices, consists of Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's parent company Meta Platforms. They are the core driving force behind the S&P 500's record highs.

Looking at the entire U.S. stock market, the seven tech giants have been the strongest engine leading the entire market since 2023. They attract global capital influx with their strong market advantages, incredibly robust revenue brought by AI, solid fundamentals, consistently strong free cash flow reserves over the years, and expanding stock buyback programs. However, the historically high valuations of these giants make Wall Street increasingly cautious—six of the seven tech giants are expected to have price-to-earnings ratios far exceeding the 25x valuation of the S&P 500 index, while the benchmark for the U.S. stock market—the S&P 500 index—is also near its historical highest valuation.

According to analyst expectation data compiled by Bloomberg Intelligence, over 81% of S&P 500 constituent companies have reported earnings that exceeded expectations, the highest proportion in the past seven earnings seasons.

Citigroup's stock strategist team stated that the earnings season for S&P 500 constituent companies has so far delivered an "impressive outperformance" report card, while most S&P 500 constituent companies have maintained their original outlook for performance in the second half of the year, with some even raising their full-year performance outlook The results of the performance revision to date show that the market consensus expectation based on earnings per share (EPS) is on the rise.

In this bullish report on U.S. stocks, Citigroup's strategist team has raised its earnings per share forecast for S&P 500 constituents: the earnings per share for 2025 has been increased from $261 to $272, and for 2026, it has been raised from $295 to $308. Citigroup's strategists wrote that the higher profit forecasts have not triggered substantial large-scale adjustments to valuation assumptions. For a longer-term bullish outlook on U.S. stocks, they expect the S&P 500 index to rise to 6,900 points by mid-2026, an increase of about 8% from current levels.

This bullish report from Citigroup indicates that the "long-term bull camp for U.S. stocks" on Wall Street is becoming increasingly large. Before Citigroup raised its expectations for U.S. stocks, some market forecasters, including Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley, had already turned more optimistic about the S&P 500 index, expecting strong profit growth from tech giants like Nvidia, Microsoft, and Google. Morgan Stanley had previously significantly raised its target price for the S&P 500 index to 7,200 points, expected to be reached by mid-2026.

John Stoltzfus, Chief Strategist at Oppenheimer & Co., has raised the year-end target for this benchmark index to 7,100 points—this is the highest S&P 500 index forecast among the strategists tracked by the institution, second only to the 7,007 points year-end target set by Wells Fargo's strategist team.

Mary Ann Bartels, a senior strategist at Sanctuary Wealth, known as the "Wall Street prophet," recently stated that artificial intelligence (AI) will drive profit growth and push the S&P 500 index to new historical highs. She currently expects the U.S. stock market to rise to 7,000 points by the end of 2025, an increase of 12% from the current historical peak.

Bartels pointed out that the winners in the U.S. stock market will continue to be winners. She is not concerned about the market concentration of large tech companies. Bartels wrote, "Profit growth remains relatively scarce, primarily concentrated in technology and technology-related industries, industrials, financials, and utilities benefiting from accelerated electricity demand."

About 91% of surveyed institutions believe the U.S. stock market is overvalued, the highest proportion since 2001.

Meanwhile, according to another monthly institutional investor survey by Bank of America Corp., a record proportion of fund managers believe U.S. stock valuations are too expensive after a strong rebound and repeated historical highs since hitting a year-to-date low in April About 91% of surveyed institutional investors believe that U.S. stocks are severely overvalued, the highest percentage since 2001.

The Bank of America survey also showed that although investors' allocation to global stocks has risen to the highest level since February, there is still a net 16% of respondents underweighting the U.S.

Investors are betting that tax cuts and the upcoming Federal Reserve interest rate cuts will boost the stock market. They are largely seeking excess returns by chasing mega-cap tech stocks, driving the concentration of returns in the S&P 500 index to historically extreme levels. Just five large tech stocks have contributed 68% of this benchmark index's gains this year: Nvidia, Microsoft, Facebook's parent company Meta Platforms Inc., Broadcom, and AI application leader Palantir Technologies.

Although most mega-cap tech companies have released their earnings reports, the next "major test" of this earnings season will be the performance of "AI chip giant" Nvidia, which will announce its results after the market closes on August 27, Eastern Time.

Citigroup strategists pointed out that the "Magnificent Seven" U.S. tech giants affected by artificial intelligence, along with AI computing leaders like Broadcom, still demonstrate strong earnings visibility and robust AI monetization capabilities. However, they expect the U.S. stock market's bull run to further exhibit market breadth similar to last year's market evolution. Nevertheless, the Citigroup strategist team advises investors to closely monitor cyclical and macroeconomic driving factors.

"A series of policy-related distortions in the first half of the year are gradually being factored into market earnings expectations," said Citigroup strategist Cronart and his team. "The expected path for the S&P 500 index to rise further requires the market leadership of mega-cap tech stocks like Nvidia and Microsoft to be maintained, while also needing the fundamentals and valuations across various sectors to continue to broaden to reinforce the bull market trend."