RBC Raises S&P 500 Target to 7900 Despite Uneven Economic Outlook
RBC Capital Markets increased its 12-month target for the SPX to 7,900 from 7,750, signaling continued confidence in U.S. equities despite ongoing economic and geopolitical uncertainty.
The new target implies potential upside of roughly 7.7% from Thursday’s closing level.
The upgrade comes after the S&P 500 rebounded more than 16% from its March 30 low, supported largely by continued strength in artificial intelligence-related stocks.
RBC Focuses on “Two-Speed Economy”
The revised forecast was led by RBC’s head of U.S. strategy, Lori Calvasina, who said the firm relied primarily on its valuation and earnings-per-share model rather than its traditional blend of forecasting models.
According to RBC, the current market environment reflects a “two-speed economy,” where AI-driven companies continue to post strong earnings growth while many other sectors face pressure from the ongoing Middle East conflict.
The firm believes AI-related businesses remain the main engine behind market strength.
AI Earnings Stay Strong While Broader Market Faces Pressure
RBC’s projections assume a 5% reduction to broader consensus earnings estimates for the first quarter of 2027, bringing expected earnings to approximately $329 per share.
However, the firm kept forecasts for AI-linked companies largely unchanged while lowering estimates for the rest of the index by 7.5%, reflecting the expected economic drag from tensions involving Iran and the broader Middle East region.
Inflation and Interest Rate Expectations Remain Elevated
On the macroeconomic side, RBC expects inflation to remain above consensus estimates at 3.3%.
The firm also anticipates that the Federal Reserve will keep interest rates unchanged, while the 10-year U.S. Treasury yield is projected to remain near 4.5%.
Based on these assumptions, RBC estimates the market will trade at roughly 24 times trailing earnings.
RBC Still Sees More Upside for Stocks
Although the average of RBC’s broader forecasting models points to a higher S&P 500 target closer to 8,100, strategists said the official 7,900 target better balances upside potential with existing market risks.
The firm stated that U.S. stocks continue to “climb the wall of worry” despite geopolitical tensions, elevated valuations, and concerns surrounding economic growth.
Growth Stocks Remain Preferred
RBC maintained its preference for growth stocks over value stocks within large-cap equities and continued to favor U.S. markets over international peers.
The firm also kept a cautiously positive outlook on small-cap stocks.
One notable sector change involved healthcare, which RBC downgraded to “Market Weight” from “Overweight” due to weaker earnings revisions, fund outflows, and softer analyst sentiment.
Key Risks Include Middle East Conflict and Semiconductor Valuations
RBC warned that several risks could still pressure markets in the months ahead.
Among the biggest concerns are potential downward revisions to 2027 earnings forecasts and stretched valuations across semiconductor companies.
The firm also identified a prolonged Middle East conflict as the biggest downside risk to the U.S. economy, although strategists currently view a recession scenario as unlikely.
According to RBC, most major companies have indicated they are still capable of managing through the current geopolitical disruptions.
