According to Citi, the stock market will have better days towards the end of the year. On Thursday, the stock market erased gains it made in the previous session, while bond yields edged higher. Wednesday’s rally came after the S&P 500 index made a new low for the year. “We’re prepared for a risky rally, call it a relief rally, at some point in Q4,” Citi US equity strategist Scott Chronert said on Thursday. CNBC’s “Squawk on the Street” channel. He predicts a rebound in earnings through the third quarter, which starts in mid-October. On top of that, sentiment is dire, with Citi’s Levkovich Index officially entering “panic” status. chaos” with last Friday’s results. That has a high probability of positive 12-month returns for the S&P 500. In late-morning trading on Thursday, the index fell below, Chronert wrote in a note earlier this week. Citi’s recession scenario level is 3,650. “It won’t take much of a shift in perception around the interest rate front, combined with stable fundamentals through Q3 to trigger a rally,” said Chronert. His year-end price target on the S&P index is 4,200, implying a nearly 13% gain from Wednesday’s closing price. Looking at the first half of 2023, Chronort puts the probability of a severe recession at 5%. However, as the Federal Reserve continues to use its voice as a policy tool, as it did when Chairman Jerome Powell warned of “some pain” to come in August, that probability will likely be “adjusted as we move forward,” he said. “It’s no big surprise here that as you continue to do that policy toward higher lending rates, you start to run the risk of a more severe economic fallout on the other side,” said Chronert. across. – Michael Bloom of CNBC contributed reporting.