RBC Says Any S&P 500 Pullback May Be Limited to 5%-10%

RBC Says Any S&P 500 Pullback May Be Limited to 5%-10% Fiona Craig Sat, May 23, 2026 at 5:04 PM GMT+2 2 min read ^GSPC SP 500 ©Shutterstock RBC Capital Markets has established a 12-month target of 7,900 for the S&P 500, implying potential upside of about 7. 7% from levels seen in early May, while warning that shorter-term market setbacks remain possible despite its generally positive outlook. Lori Calvasina, head of U.

S. equity strategy at RBC Capital, said the bank does not expect the market’s advance to unfold in a straight line, although it believes any correction would likely be limited to “a tier 1 garden-variety pullback in the 5-10% range. ” According to RBC, a steeper decline of 14% to 20% would probably require renewed recession fears to emerge.

The firm’s target is based on a framework it described as “AI in the fast lane, Middle East in the slow lane,” reflecting a market environment where artificial intelligence-related sectors continue to outperform while geopolitical tensions weigh on broader economic activity. Under that model, RBC reduced its bottom-up consensus estimate for first-quarter 2027 earnings per share by 5%, assuming earnings growth of 28% for AI-linked companies and 6% growth for the remainder of the index. The forecast also incorporates consumer inflation of 3.

3%, no additional Federal Reserve rate changes, and a 10-year Treasury yield of 4. 5%. RBC added that if inflation accelerates to 3.

8%, the Federal Reserve resumes raising rates, and 10-year yields climb to 5%, its estimate for fair value on the S&P 500 would decline to a range of 7,400 to 7,500. The bank identified several potential triggers for a near-term correction, including downward revisions to earnings forecasts for late 2026 or 2027 tied to war-related disruptions, profit-taking in semiconductor stocks, uncertainty surrounding the U. S.

midterm elections, and rising interest rates. RBC noted that higher rates typically pressure equities more through valuation compression than through direct impacts on corporate earnings. The firm also reiterated its preference for Growth stocks over Value shares, as well as for U.

S. equities relative to international markets.