RBC Capital Markets expects a 5% to 10% pullback in the S&P 500 over the coming weeks or months, even while keeping its 12-month target on the index unchanged. Strategist Lori Calvasina points to four near-term risks but says the broader economic backdrop still looks resilient by the standards of past drawdowns.
RBC Capital Markets forecasts a 5% to 10% pullback in the S&P 500 over the coming weeks or months, according to a report published Monday. Strategist Lori Calvasina and co-authors Rachel Sidari and Simon Simoski name four tactical risks behind the call: the war in Iran, the chance that economists lower top-down GDP forecasts and force equity analysts to trim earnings growth estimates, volatility around the U.S. midterm elections, and the recent combination of higher bond yields with a hawkish signal from the Federal Reserve.
Target holds at 8150 despite the warning
Even so, Calvasina and her team keep RBC's 12-month target on the S&P 500 at 8150, a path they describe as, according to RBC: "higher but not heroic." RBC runs five separate models for projecting S&P 500 returns, and four of them point to higher levels. But the model that factors in earnings per share and valuations is flagging concern, tied to the sharp move in the U.S. 10-year Treasury yield toward 5.25%.
Drawdowns have grown milder since the financial crisis
Calvasina, who has studied every major stock-market drawdown of more than 10% since 1956, finds that declines since the 2008 financial crisis have generally been both less severe and shorter. The usual catalyst behind past pullbacks was an outright decline in corporate profits, and RBC points to positive U.S. earnings revisions in 2026 as one reason major indices have stayed resilient despite adverse moves in energy prices, inflation and bond markets.
Sentiment and labor data show few warning signs
RBC notes that confidence gauges such as the National Federation of Independent Business and the American Association of Individual Investors indexes tend to drop sharply during major drawdowns, but those slumps are usually preceded by highly bullish sentiment — a condition RBC says is not apparent today. Labor-market indicators also tend to deteriorate ahead of drawdowns, though that pattern has been less reliable since the financial crisis, and payrolls posted a strong reading for August. RBC also finds little evidence of the broader economic damage that typically shows up during volatile periods, while weak seasonality has shown up in August and September returns in five of the last ten years.
On yields, Calvasina notes that the S&P 500 fell 5% to 10% in two of the last three periods of rising bond yields over four years, but gained in the other. She argues real yields may be a better guide to market direction, and a pullback in real yields — which broke through post-2022 highs in September — could help stabilize the index.
RBC keeps an overweight call on the technology, financials and materials sectors, while it disfavors utilities.
Source: MarketWatch
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