RBC Capital Markets has increased its 12-month target for the S&P 500 to 8,150, up from 7,900, signaling that the brokerage sees a broadly constructive backdrop for equities over the coming year even as it cautioned that the advance is unlikely to be smooth.
The move was partly driven by an upward revision to the earnings input used in RBC’s valuation framework. The bottom-up consensus for first-quarter 2027 earnings - the timing reference in RBC’s model - has risen since the firm’s May update. At the same time, RBC trimmed its assumed inflation path to 3.0% from 3.3%, which allowed a slightly more favorable price-to-earnings consideration in the target calculation.
RBC said it continues to apply a uniform 5% haircut to consensus estimates as part of its process.
Strategically, the firm has returned to tying its S&P 500 target to the median and average of five distinct models after a period in which it anchored the target solely to its valuation model. Those five models incorporate sentiment, valuation, the relationship of stocks versus bonds, the GDP backdrop and the monetary policy environment. RBC said the temporary shift to a valuation-only focus was intended to better capture the influence of evolving AI-related earnings dynamics and the uncertainty linked to developments in the Middle East. With geopolitical tensions easing somewhat, the firm judged that a multi-model approach was again appropriate.
"The story we’re seeing in the numbers broadly is that the stock market deserves to move higher over the next year from a variety of perspectives," strategists led by Lori Calvasina said.
RBC’s strategists warned that the upcoming earnings season carries a high bar from a data perspective and could therefore be a source of near-term volatility. They highlighted a number of tactical risks that could disrupt markets in the short term, including profit-taking in semiconductors and other AI-exposed names, military setbacks in conflict zones, potential downward revisions to 2027 consensus earnings forecasts, the U.S. midterm elections and the possibility of rising rates or further Federal Reserve action.
On downside scenarios, RBC expects any pullbacks to be contained to roughly 5% to 10% from peak levels, provided that recession risk remains low and there is no major interest rate shock.
Regarding market positioning, the strategists said the recent relative strength in non-U.S. developed markets and value stocks may have additional room to run, but they view those moves as tactical trades rather than durable changes in leadership. The team anticipates that U.S. equities, and particularly large-cap growth, will reassert dominance after the current valuation correction runs its course.
RBC maintained a neutral stance on small-cap stocks. While small caps benefit from solid economic fundamentals and attractive earnings growth projections, the firm noted these positives are balanced by high absolute valuations and the typical headwind that rising interest rates impose on this segment.
The strategists also indicated they will be closely monitoring market signals following the Russell index reconstitution scheduled for Friday.
Context and implications
The combination of a higher earnings assumption, a lower inflation forecast and a return to a diversified model set underpins RBC’s higher S&P 500 objective. The firm’s continued application of a 5% haircut to consensus keeps the target grounded in conservative adjustment practices, while the recalibration of the modelling approach reflects evolving considerations around AI-driven earnings and changing geopolitical risk.