Citi Research's Rob Rowe on the firm's 2026 S&P 500 target of 7,700

Economic Outlook - The US economists project a growth rate of approximately 1.9% for the next year, indicating a focus on downside risks related to labor [2] - Tax law changes, including potential tax incentives and refunds, are expected to influence economic conditions positively, potentially leading to a stronger growth environment [3][4] Inflation Trends - Headline inflation is anticipated to remain contained, with oil prices expected to stabilize around $60 and food prices potentially decreasing due to tariff adjustments [4] - Core inflation may remain sticky or even decline, despite stronger growth, particularly in the services sector [5] Market Projections - The S&P 500 target for the next year is set at 7700, representing an 11% increase from current levels, driven by expectations of continued AI investment and a cyclical recovery [5][7] - This projection suggests the potential for a fourth consecutive year of double-digit gains for the S&P 500, which historically indicates a positive outlook for the market [8] AI and Earnings Growth - The role of AI is viewed as a significant factor in driving earnings growth, with expectations of a "beat and raise" scenario for many AI companies [6][7] - There is an anticipated broadening of earnings due to increased demand and supply dynamics related to AI adoption [7]