RBC expects S&P 500 to rise 14% over the next 12 months

Investing.com -- RBC Capital Markets set a new 12-month price target of 7,750 for the S&P 500, which implies upside of nearly 14% from the November 26 close.

The broker’s new target is built from five models spanning investor sentiment, valuation versus bonds, expected earnings, the economic backdrop and monetary policy. The outputs range from about 7,200 to nearly 8,000, with 7,750 representing the midpoint of those signals.

This approach is meant to act as a directional “compass” rather than a precise year-end forecast, RBC strategists led by Lori Calvasina said.

Sentiment remains one of the strongest tailwinds. The four-week average of AAII investor sentiment survey net bulls recently sat between one and two standard deviations below its long-term average.

This zone has “on average, been followed by a gain of 15% in the S&P 500 on a 12-month-forward basis,” Calvasina said.

Valuation also pushes the market higher in RBC’s framework. Its updated price-to-earnings (P/E) model, which now excludes the 2010s to better capture post-COVID dynamics, points to a trailing multiple of 25.7x based on consensus expectations for inflation easing into the mid-2% range, several more Fed cuts, and 10-year yields near 4%.

When combined with bottom-up earnings per share (EPS) of $311 for the next four quarters, the model “points to a fair value of nearly 8,000.”

Another key catalyst driving RBC’s updated price target is earnings strength. Consensus expects EPS to rise about 13% on a trailing basis over the coming year, a pace that closely matches RBC’s implied market return.

“Our 12-month S&P 500 price target of 7,750 implies a return of nearly 14% from late-November levels, right in line with the level of EPS growth anticipated by the bottom-up consensus over the next four quarters,” Calvasina noted.

The models tied to rates and bonds support equities as well. The earnings-yield gap is slightly negative but still sits in a range historically followed by mid-teens gains, while periods of modest Fed cuts — around 1% over 12 months — have been associated with an average S&P 500 rise of 13.3%.

The main drag in the outlook comes from GDP expectations. Consensus and RBC Economics see growth in the 1.1–2% range for 2026, a band that historically has been accompanied by a 12-month return of 5.7% in the S&P 500.

That keeps the model at the low end of RBC’s range, but even so, the broader mix of indicators skews positively.