Citi thinks the S&P 500 is on the cusp of an earnings growth inflection, as the market continues to be weighed down by longer-term concerns related to the broader economic environment.

“There is no doubt that 2024 recession risk remains a U.S. equity market overhang,” analyst Scott Chronert said in a recent note. “Our view continues to emphasize that earnings risk may be less than typical relative to prior recessions. Further, recessions usually lead to interest rate relief. This can set up for valuation support.”

Current estimates still point to flat growth expectations for the third quarter compared to the same period last year, Chronert said.

The analyst remains constructive on the “fundamental setup” for the S&P 500 headed into 2024, however, saying that even modest earnings beats will lift the market out of a mild earnings recession.

He noted that earnings per share growth in the broader market has been negative for three consecutive quarters, but said that only a modest level of upside surprise is needed to push third-quarter EPS growth into positive territory compared to the previous comparable quarter. If that happens, it would push third-quarter year-over-year growth to roughly 3% and fourth-quarter growth to near 10%, he said.

— Pia Singh

Stock futures rose modestly shortly after 6 p.m. ET.

Futures tied to the Dow, S&P 500 and Nasdaq 100 all rose about 0.2%.

— Alex Harring