RBC Capital remains constructive on U.S. equities over the coming year, saying that while valuation metrics have risen since the March low they are not yet at ranges that historically indicate a market peak.
In a client note, Lori Calvasina, head of U.S. equity strategy at the bank, pointed out that the S&P 500 has rallied more than 14% from its March 30 trough, contributing to higher valuation readings. Still, Calvasina noted that the bottom-up market cap weighted S&P 500 next-12-month price-to-earnings ratio is "trading a bit above 25x, still well below its high of more than 28x seen last year."
Smaller-cap benchmarks likewise remain below earlier peaks. The Russell 2000, RBC said, is trading at roughly 16.6 times fiscal year 2 earnings, which is lower than the 18-times-plus level that marked its high earlier this year.
RBC maintained its 12-month-forward S&P 500 price target of 7,750, while warning that the route to that level is unlikely to be straight-line. The note listed a handful of potential near-term triggers for volatility: downward earnings-per-share estimate revisions for non-AI names, the midterm elections, and profit-taking in semiconductors and AI-related stocks.
On the corporate results front, RBC described first-quarter reports as demonstrating resilience mixed with caution. Companies, the bank said, are emphasizing risk-management steps such as hedging, inventory controls and exercising pricing power to counteract cost pressures tied to the war. Among consumer-facing areas, restaurants and travel showed the most evident challenges.
"We think the emphasis that US public companies have made on their ability to manage through is one of the reasons the US equity market has been resilient since the war began," Calvasina wrote.
RBC added that if markets do pull back, the firm expects declines to remain in the 5% to 10% range unless broader recession fears materialize, which historically have been associated with deeper drawdowns.
Overall, RBC's analysis presents a market that has made significant ground from its March lows and where valuation expansion still has room, tempered by identifiable risks that could produce short-term volatility.