RBC raises S&P 500 forecast to 5,730 but sees wide downside risk and choppy path through 2025
RBC Capital has raised its year-end 2025 forecast for the S&P 500 to 5,730, up from 5,550, but warned the index is likely to end the year below current levels.
According to a note to clients reported by Investing.com, RBC maintained a cautious tone, highlighting “a wide range of potential outcomes and growing downside risks.”
The firm’s target is 3 percent below the index’s close of 5,911.69 last Friday.
RBC strategists stated that “the stock market is on a slightly better path than the one that we were on in early April.”
However, they do not believe it has returned to levels seen in January or mid March. They also cautioned that rebounding sentiment remains the main risk to their outlook.
RBC projected a broad range of scenarios by year-end, from a bull case of 6,400 to a bear case between 4,200 and 4,500, adding that the spread “highlights the high degree of uncertainty and fog in the outlook.”
As per CNBC, Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, explained that a “meaningful move above 5 percent in the benchmark 10-year note yield would pressure equities.”
The firm maintained its earnings-per-share forecast for the S&P 500 at US$258, below the consensus estimate of US$264, according to The Globe and Mail.
RBC also stated that “our sentiment model... is signaling less robust forward returns,” and a move to +1 standard deviation above the long-term average “has been a reliable signal that the stock market is due for a significant pullback.”
RBC’s base case assumes inflation in the upper 2 percent range, three Federal Reserve rate cuts starting in September, and real GDP growth of 1.3 percent for 2025.
Calvasina added that their models include “margin contraction (more significant in the back half of the year than in 2Q), and some relief on interest expense driven in part by several cuts from the Fed starting in September,” as reported by CNBC.
According to The Globe and Mail, the S&P 500 posted its largest monthly gain since November 2023 in May.
Markets rebounded from April lows, supported by lower inflation, strong corporate earnings, and a shift in tariff policy from US President Donald Trump.
The index, which had fallen nearly 20 percent from its February high, recovered most of its losses, ending just 3.8 percent below that peak.
RBC also noted weakening interest from non-US investors, attributing it in part to shifting trade dynamics.
Analysts said, “Tariffs opened a door – an openness to investing in other geographies – that had been closed for quite some time.”
Other firms have made similar adjustments.
Last month, both Goldman Sachs and UBS Global Wealth Management raised their S&P 500 targets, as noted by The Globe and Mail.
