RBC: S&P 500 Could Surpass 7,100 if Fed Cut History Repeats
The S&P 500 may rise beyond RBC Capital’s 7,100 target for the second half of 2026 if historical trends following Federal Reserve interest rate cuts play out, analysts at the firm said.
RBC pointed out that “reset cuts”—rate reductions made after a long pause in a cutting cycle—have historically delivered a median 12-month-forward return of 13%. In contrast, non-recession cuts tend to yield a 21% median 12-month-forward return. This suggests upside potential for RBC’s current 2H26 forecast.
The analysis, published in RBC’s weekly “Pulse” report, reviewed several market signals. A key concern is the weakness in homebuilders, with the S&P 1500 Homebuilders sub-index down over 7% since early September. Analysts warned this could undermine the recent strength in small-cap stocks.
On corporate earnings, RBC noted a slowdown in upward EPS revisions for the S&P 500, with momentum concentrated in the top 10 largest companies. Broader market trends outside those names have deteriorated, posing a challenge to the broadening leadership thesis.
At the same time, investor sentiment has turned more bullish, according to the AAII survey, which showed a sharp rise in optimism last week. Historically, similar readings have been followed by an average +15% 12-month-forward return for the S&P 500.
RBC also highlighted improving capital expenditure trends in Q2 and a rebound in U.S. equity fund flows, both supportive of further market upside.
In conclusion, while short-term uncertainty remains, RBC said that if Fed rate cuts are not tied to a recession, history suggests U.S. stocks may still have significant room to climb.
