RBC Becomes More Cautious on the Short-Term Outlook for US Stocks

RBC Capital Markets has assessed the short-term outlook for U.S. equities and warned that the S&P 500 could fall by 5%-10%, even though the bank remains optimistic on the index over a 12-month horizon.

According to Lori Calvasina, head of U.S. equity strategy at RBC, the risk of a "normal" 5%-10% correction has increased as autumn begins. The bank highlights several key factors.

The first is seasonality — in five of the past 10 years, September has ended with a negative result for the S&P 500.

The second factor is the U.S. midterm elections, which typically bring additional market volatility in pre-election years. RBC notes that growing criticism of AI has already become a theme in political campaigns, while prediction markets point to rising odds of a Democratic victory, a scenario the bank's research considers less favorable for the market.

The third risk is the war in Iran, which, according to Calvasina, is weighing on consumer sentiment. Added to this are investor concerns about inflation, the Federal Reserve, and interest rates. Small-cap stocks in particular look especially weak, having lagged the market since the end of June amid growing expectations of rate increases.

Despite the near-term caution, RBC continues to maintain its 12-month S&P 500 price target of 8,150 points, implying roughly a 6% gain from the September 8 closing level. According to Calvasina, all five of the models used by the bank point to further gains in the index over the next 12 months.