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Pro Analysis

Citi raises its 2017 S&P 500 forecast, citing the 'Trump jump and pump'

President-elect Donald Trump addresses to his supporters at the USA Thank You Tour 2016 at the Wisconsin State Fair Exposition Center in West Allis, Wisconsin.
Bilgin S. Sasmaz | Anadolu Agency | Getty Images
President-elect Donald Trump addresses to his supporters at the USA Thank You Tour 2016 at the Wisconsin State Fair Exposition Center in West Allis, Wisconsin.

Citi Research strategist Tobias Levkovich told investors Donald Trump's economic agenda will boost corporate earnings next year and result in higher stock prices.

"The combination of planned tax cuts (both corporate and personal), light-handed regulation, a repatriation tax holiday on overseas cash and possible infrastructure spending has buoyed hopes for faster economic and earnings growth in 2H17 into 2018," Levkovich wrote in a note to clients Thursday titled "The Trump Jump and Pump."

"Corporate profits look poised to increase in 2017 and 2018 due in part to easing bank lending standards, a rebound in small-business optimism, tax cuts and energy sector recovery."

The strategist said if the corporate tax rate is lowered to 20 percent from the current effective rate of 27 percent, it would add $12 a year to S&P 500 earnings per share. As a result he raised his 2017 market earnings-per-share forecast to $131 from $129, representing 9 percent annual earnings growth from 2016.

The forecast only incorporates a tax reduction benefit to 2017 fourth-quarter earnings due to legislative timing.

"The possibility of retroactive tax cuts could force 2017 numbers higher too," he added.

Due to the potential for strong earnings growth from Trump's polices, Levkovich raised his 2017 S&P 500 price target to 2,425 from 2,325, representing 7 percent upside from Thursday's close.