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RBC Lifts S&P 500 Target Level Amid Economic, Earnings Strength

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RBC Lifts S&P 500 Target Level Amid Economic, Earnings Strength

RBC Capital Markets raised its 12-month target for the S&P 500 index amid expectations for a favorable macroeconomic backdrop and robust earnings.

The brokerage now expects the S&P 500 to hit 8,150 over the next 12 months, up from its previous 7,900 estimate, it said in a research report on Monday. The new target implies a gain of nearly 11% from the index's close on June 25, according to RBC.

The brokerage changed it methodology to focus on a broad set of factors including valuation-to-earnings per share, gross domestic product and monetary policy, RBC Head of US Equity Strategy Lori Calvasina wrote in the report.

Previously, RBC linked its S&P 500 target level to the valuation-to-EPS model, allowing it to adjust assumptions around artificial intelligence earnings and the impact from the Middle East conflict. "But, this seems like a slightly less pressing need given additional de-escalation in the conflict," Calvasina said.

Earlier in June, the US and Iran signed a memorandum of understanding to end their war and reopen the crucial Strait of Hormuz.

Numbers suggest the stock market "deserves to move higher" over the next year as sentiment improves and earnings rise in what Calvasina described as a "solid" economic backdrop.

The US economy expanded at a faster rate in the first quarter than previously projected, an official report showed last week.

The brokerage has factored in higher EPS assumptions for the first quarter of 2027 on a trailing fourth-quarter basis, Calvasina added.

"Overall, even with some conservatism still baked into our (price-to-earnings) assumption, we see earnings tailwinds offsetting P/E pressures from a trickier rates and inflation environment in the year ahead," according to Calvasina.

RBC's more favorable price-to-earnings assumption reflects an inflation rate of 3%, down from its prior forecast of 3.3%.

US consumer sentiment increased in June amid moderating gasoline prices, while inflation expectations eased, a survey by the University of Michigan showed Friday.

Consumer spending rose more than projected in May, while the Federal Reserve's preferred inflation metric accelerated to the fastest reading in more than two years, according to separate official data released last week.

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