- RBC argues U.S. equity valuations are climbing but remain below levels that typically signal a market peak, maintaining a constructive outlook.
- The S&P 500's forward P/E sits just above 25x, below last year’s ~28x peak, while the Russell 2000 trades at ~16.6x, still under prior highs.
- RBC keeps a 7,750 12-month S&P 500 target and expects pullbacks of 5-10% but not deeper declines without recession fears.
RBC’s equity strategy team says U.S. stock valuations are rising, but they aren’t yet flashing warning signs of a market top. The S&P 500’s forward price-to-earnings ratio hovers just above 25 times, below the roughly 28 times peak seen last year, according to the firm. Small-cap stocks, as measured by the Russell 2000, trade at about 16.6 times forward earnings, still under their prior highs. RBC maintains its 12-month target of 7,750 for the S&P 500, suggesting room for further gains.
The bank remains constructive, citing corporate resilience through hedging, pricing power, and inventory control as supports even amid war-related cost pressures. “Earnings have held up better than feared, and that’s kept the market from rolling over,” one strategist said. However, risks remain: earnings cuts outside AI names, midterm election uncertainty, and profit-taking in semiconductors and AI stocks could weigh on sentiment.
RBC expects pullbacks of 5-10% to be likely but not a deeper decline unless recession fears escalate. The firm sees the current environment as consistent with a mid-cycle reprieve rather than a top. We reached out to RBC for further comment but did not receive an immediate response.