Investing.com -- In a note Friday, Citi cautioned that its year-end target for the S&P 500 now looks stretched, as rising oil prices and higher bond yields cloud the outlook for U.S. equities.

Strategist Scott Chronert said the bank's "year-end 8100 target looks on the aggressive side given the macro twist of higher oil since early August and mid-long end rates over the past several weeks."

He added that third-quarter earnings should be fine but that reaching the target would rely more heavily on a year-end rally as current uncertainties find resolution.

On the Federal Reserve, Chronert said the economic backdrop is mixed and lacks classic signs of overheating, so "a next Fed rate hike is not a foregone conclusion."

Still, he believes persistent inflation concerns mean a hike could ease uncertainty, and that if the Fed moves, investors may need to expect two rather than one, a step that could prove positive for equities if it helps contain long-end yields and paves the way for later cuts.

The strategist flagged the 10-year Treasury yield as a key threshold, saying a rise toward 4.80% and then 5.0% would be "a line in the sand" that could trigger tactical disruption, particularly with oil above $80.

Together, he said, rates and oil are pressuring Citi's call for the market to broaden into cyclicals and small caps.

On the midterms, Chronert expects the outcome to be largely a non-event for equity fundamentals, though he flagged societal pushback on AI and data center buildouts, and the risk of higher taxes under a Democratic sweep.