Mid-Year Outlook Update

The big things you need to know:

• First, we are lifting our 12-month S&P 500 price target to 8,150 from 7,900. We also think the recent outperformance of non-US developed markets and value could last a bit longer but ultimately expect equity market leadership to return to the US and big cap growth after the recent valuation problem is resolved.
• Second, we run through our thoughts on the upcoming reporting season, noting that the bar seems high from a data perspective.
• Third, the latest Duke CFO survey pointed to a slight downtick on economic optimism but a slight uptick on optimism on the outlook for one’s own company.

Welcome to RBC’s Markets in Motion podcast, recorded June 29th, 2026. I’m Lori Calvasina, head of US equity strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.

With the first half of 2026 coming to a close, today we’re refreshing our thoughts on the year-ahead outlook for US equities. The big things you need to know: First, we are lifting our 12-month S&P 500 price target to 8,150 from 7,900. We also think the recent outperformance of non-US developed markets and value could last a bit longer but ultimately expect equity market leadership to return to the US and big cap growth after the recent valuation problem is resolved. Second, we run through our thoughts on the upcoming reporting season, noting that the bar seems high from a data perspective. Third, the latest Duke CFO survey pointed to a slight downtick on economic optimism but a slight uptick on optimism on the outlook for one’s own company.

If you’d like to hear more, here’s another five minutes.

Starting with Takeaway #1: Lifting Our 12-Month S&P 500 Price Target To 8,150; Thoughts on the Recent Leadership Rotations

When we froze our models last Thursday, the S&P 500’s price level was similar to that in place at the time of our last update in May and most of our models were sending the same signal or a similar one to what we’re seeing today. There are two changes in our thinking and modeling to be aware of.

The first is on methodology. We are once again linking our target to an approximation of the median and average of our five models on sentiment, valuation/EPS, stocks vs. bonds, the GDP backdrop, and the monetary policy environment. In our last update, we linked our target to an approximation of our valuation/EPS model, which gave us the best ability to fine-tune our assumptions on AI earnings strength and the impacts from the situation in the Middle East, but this seems like a slightly less pressing need given additional de-escalation in the conflict. This is important because the story we’re seeing in the numbers broadly is that the stock market deserves to move higher over the next year from a variety of perspectives – subdued sentiment that still has room to climb a wall of worry, earnings tailwinds that offset P/E headwinds in the form of possible interest rate and inflation pressures, a solid GDP backdrop, and a monetary policy backdrop that’s still conducive to further gains.

The second change to be aware of is that our valuation/EPS model now actually points to a higher fair value for the index. That model is now calling for 8,162, up from 7,929 previously. This is largely because our June update bakes in a higher EPS assumption. The bottom-up consensus for 1Q27, which remains the reference point for this model for now, has moved up since our May update (note, we are still haircutting the consensus by 5%). Our June update also now employs a very slightly more favorable P/E assumption due to a slightly lower inflation assumption of 3% (down from 3.3% previously), which offsets the addition of a single hike into our model.

All that being said, we continue to believe that the path higher for stocks in the year ahead will not necessarily be a linear one. Tactical risks we’re monitoring include further profit taking on Semis and other AI winners, war setbacks, the potential need for downward adjustments to bottom-up consensus 2027 S&P 500 EPS forecasts, the US mid-term elections, and rising interest rates / Fed hikes. We expect pullbacks to be no worse than 5-10% from peak, tier 1 on our Four Tiers of Fear framework, as long as the risk of a recession and/or a major interest rate shock stays low.

We’ve also refreshed our views on the key, higher level positioning trades that we track closely – US vs. non-US developed markets, US Growth vs. Value, and US Small Cap.

In the case of US/non-US and Growth/Value, we think leadership by non-US and Value has room to run but still think of these as trades rather than longer-term shifts in leadership. While we look at other factors as well, our valuation work has helped to inform our views on both of these calls.

Before the latest rotations back to non-US and Value began, our valuation work had been signaling that the US was no longer cheap vs. non-US on NTM P/E, a condition that had helped usher in US leadership in March, and that the median NTM P/E of the top-10 market cap names in the S&P 500 had moved up above 30x, getting close to the ceilings of the past few years.

What we’re seeing today suggests that the valuation correction in the US generally and US mega cap growth in particular may not have fully played out. The US is below the 5-year average relative to non-US, but not back to prior lows.

Meanwhile, the S&P 500 top-10 names are also not yet back down to prior lows.

Moving on to takeaway #2: A high bar on the stats heading into 2Q26 reporting season.

Bottom-up consensus expects 23% growth for S&P 500 EPS in 2Q26 (yr/yr on the quarterly data point), a slower pace than the 30% growth seen for 1Q26. But bottom-up consensus 2Q26 S&P 500 EPS estimates (in terms of the embedded growth rates) have been moving up, which has also been the case for 3Q26, 4Q26, 1Q27, and 2Q27.

Meanwhile, all sectors in the S&P 500 have experienced a positive rate of upward revisions on both EPS and revenues in recent weeks, aside from Communication Services.

Within the S&P 500, the biggest market cap names (which have been doing the heavy lifting on earnings) have already hit peak levels of upward revisions and have slipped a bit from those levels. Earnings will be quiet around the upcoming July 4th holiday in the US and will start to pick up the week of July 13th. The recent wobble in the equity market may admittedly reflect the idea that earnings sentiment may need to cool off a bit.

Wrapping up with Takeaway #3: clues on the c-suite tone.

We always look forward to the release of the Duke CFO survey shortly before reporting season, as it gives us a baseline for the c-suite tone once results start to come in. The results of the latest survey, taken from May 18th to June 5th and released last week, highlighted a slight downtick on the economic outlook but a slight uptick on optimism on one’s own company. The gap between the two remains wide, as has been the case since COVID. This is something we think speaks to the resiliency of Corporate America and confidence in their ability to manage through. Inflation and non-labor costs were the top concerns, replacing tariffs and trade from the last survey.

That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.