AI Resurgence and $1 Trillion in Buybacks Set to Propel Stock Market Higher

The S&P 500 closed just above the 6,000 mark last week, inching closer to record highs. A further 2.4% gain would push the index into new territory, continuing a rally that has seen the benchmark rise over 20% since mid-April.

That surge is forcing a shift in sentiment among Wall Street analysts. Forecasts that were cut earlier in the year are now being revised upward. Citigroup, for instance, has raised its year-end 2025 S&P 500 target to 6,300, up from 5,800. While still below its original projection of 6,500, the new target reflects reduced concern over trade tensions and increased optimism about the economic outlook.

Citi notes that investors appear more willing to overlook short-term policy noise, especially as GDP expectations and labor market indicators have improved in recent weeks. The bank also raised its full-year S&P 500 earnings forecast to $261 per share from $255, citing improved sentiment and corporate resilience in a complex policy environment.

Valuations remain elevated, but Citi believes they are justified. The firm expects the market’s price-to-earnings ratio to hold near 21, supported by structural changes—particularly technological advancements like AI—that are reducing earnings sensitivity to economic cycles.

Two key drivers are expected to underpin the market’s strength:

• AI Investment: Citi sees renewed momentum in the AI trade, with companies maintaining strong capital expenditure despite political uncertainty—an encouraging signal for long-term growth.

• Buybacks: Corporate buybacks are accelerating, with Citi projecting a total of $1 trillion in 2025. Increased volatility and cautious capital allocation are pushing companies to return more value to shareholders.

Citi acknowledges that ongoing political uncertainty—especially as the 2024 U.S. election approaches—adds noise to the market. However, they argue that investors, analysts, and companies are becoming more adept at managing through it.

“Fundamentals are proving more stable than policy headlines,” the team writes. As the second half of 2025 approaches, Citi sees further gains, emphasizing a strategy of buying pullbacks rather than chasing rallies. Their mid-2026 S&P 500 target remains at 6,500.