In a recent client note, RBC Capital updated its year-end 2025 target for the S&P 500 to 5,730, a modest increase from their previous projection of 5,550. However, the firm cautions that despite this higher target, the index is still likely to experience a decline from current levels before the year closes.
RBC analysts described the stock market outlook as “choppy,” with a broad range of potential scenarios and heightened downside risks. Their sentiment model indicates weaker expected returns ahead, noting that historically when the market rises more than one standard deviation above its long-term average, it often precedes a notable pullback.
The bank’s forecast spans a wide spectrum – from an optimistic bull case of 6,400 to a pessimistic bear case between 4,200 and 4,500 – reflecting the considerable uncertainty clouding the market’s future.
RBC’s assumptions include inflation settling in the low-to-mid 2% range, three Federal Reserve interest rate cuts beginning in September, and a 1.3% real GDP growth for the year. However, the firm warns that rising 10-year Treasury yields or weaker-than-expected economic data could quickly alter investor sentiment.
The note also points to waning interest from foreign investors, attributing previous inflows to tariff-induced diversification efforts that may now be losing momentum.
Overall, RBC maintains a “rather neutral” outlook, highlighting that current S&P 500 valuations already incorporate some improvement in macroeconomic fundamentals. Still, policy uncertainties and softer consumer confidence pose risks that could trigger a market correction before year-end.