Research @ Citi Markets Edition: A Structural Bull Case for the S&P 500
Aug 26, 2025
Scott Chronert, Head of U.S. Equity Strategy at Citi Research, dives into a bullish outlook for the S&P 500. He emphasizes the importance of a long-term perspective in light of recent AI investments reshaping the market. Chronert discusses how long-term earnings growth drives stock performance and examines the rise of tech giants within the S&P 500. He also highlights the increasing financial flexibility of growth-oriented companies, attributing higher valuations to enhanced productivity and the evolving dynamics of U.S. equities.
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Earnings Drive Long-Term Market Returns
- Long-term S&P 500 performance tracks earnings growth more than short-term noise.
- Stock prices lead earnings by ~2–3 quarters, so earnings are the key structural driver.
Index Composition Has Become Growth-Heavy
- The S&P composition shifted strongly toward growth and mega-cap tech over decades.
- Growth weights rose from ~12% in the 90s to nearly 40%, shrinking cyclical exposure.
Rising Margins Support Valuation Upside
- Productivity and margin expansion have lifted S&P EBITDA margins meaningfully since the financial crisis.
- Margins rose from just under 15% to over 19%, supporting higher terminal values.