RBC Capital's head of U.S. Equity Strategy, Lori Calvasina, notes an increasing wall of political and economic risks that could lead to an 8% to 10% pullback in the S&P 500. This comes as markets in the U.S. and Europe have traded sideways for a month, with the boost from the earnings season showing fatigue. Investors are contending with the possibility of further interest-rate hikes by the Federal Reserve, an escalation in the Middle East, and unpredictable U.S. midterm elections.
Despite these short-term concerns, Calvasina maintains a long-term bullish outlook for U.S. stocks, reiterating a 7,750 target for the S&P 500, with a broader year-end range of 7,750 to 8,150. She indicates that models still argue for solid gains over the next 12 months, supported by expectations of modest Fed rate cuts, stable long-term yields, and 13% S&P 500 EPS growth in 2026. Bottom-up 2026 EPS estimates have risen to $314, contributing to this optimism.
Calvasina also highlights emerging cracks in U.S. consumer resilience, particularly in discretionary spending categories, due to tariff pressures and weakening sentiment. While she flags consumer discretionary stocks as higher-risk cyclicals, she believes these risks are sector-specific rather than systemic, and do not pose a meaningful impediment to the "buy America" trade. Her analysis draws a distinction between robust corporate earnings and softening consumer confidence surveys.
Recent market activity has shown some weakness, with U.S. stocks slipping as Brent crude oil hit $100 due to U.S.-Iran tensions, raising inflation risks. However, RBC Capital previously stated that a recent 2.6% pullback in the S&P 500 from its all-time high was likely short-lived, comparing it to other "garden-variety" pullbacks in the 5% to 10% range. Risk indicators like bitcoin and private-market proxies that flashed concerns in early 2026 have also started to stabilize.
Overall, while Calvasina acknowledges growing macroeconomic headwinds and the potential for a significant market correction, her underlying message for U.S. equities remains upbeat. She attributes this to the fundamental soundness of corporate America's earnings engine and an investment landscape where sentiment gauges suggest room for upside, and valuation and earnings-based models point to strong gains.
