The big thing you need to know: We are introducing preliminary forecasts for the S&P 500 for 2026 of 7,100 (a 2H26 price target) and $297 (full-year 2026 S&P 500 EPS). We think they should be viewed as a very early indication of how our models are tracking at the moment.
If you’d like to hear more, here’s another five minutes.
in:
As we met with a variety of US equity investors last week – ranging from hedge funds to high-net-worth retail, from high level macro investors to stock pickers, and everything in between – it became clear to us that it’s time to start talking more about 2026. When we discussed the complex cross currents for stocks in the coming months, the conversations quickly turned to the longer set-up.
ls we’ve been using for our:
Our Sentiment and Cross-Asset models are sending the most constructive signals.
tive model in our arsenal for:
On Cross-Asset, we rely on our earnings yield gap model, which reminds us that the S&P 500 has, on average, risen 12.7% over the next 12 months when the gap between the S&P 500’s earnings yield and the 10-year Treasury yield has been in the range that it resides in today. Has the case for stocks eroded relative to bonds, compared to what we’ve seen in the past? Yes, but not enough to suggest the stock market should fall on a 12-month forward basis. Our earnings yield gap model would likely start to send a negative signal for stocks, in terms of direction, if the 10-year yield crosses 5%.
ars (a range in line with the:
th and final component of our:
rest rates dating back to the:
As our regular readers are aware, we think about price targets differently than many strategists. We view our price target as a compass, not a GPS, and as a signaling mechanism about the path that we currently see the stock market on from a variety of angles. Just like any analyst who covers the stock of an individual company, we plan to revise our 2026 forecast as new information comes to light or if our target no longer reflects our views about the trajectory that the stock market is on. The message we are trying to send with our analysis today is that the S&P 500 appears to be on a path higher over the next 12 months and into the 2nd half of 2026.
a modest adjustment to our YE:
Although we are nudging our:
We are also mindful of the sudden drop in AAII net bulls that emerged in August, which despite the positive longer-term set-up that it communicates about the stock market, is a similar move to what we saw in 1Q25 and has been a leading indicator of short-term stock market declines in recent years.
There’s been a lot of conversation about the support that retail investors have provided to the US equity market this year, but some of the indicators we watch to gauge sentiment in that part of the market are showing some signs of fatigue (flows to passive US equity funds by retail investors and bitcoin).
We are also concerned that the US equity market is priced for perfection at a time when uncertainty about the fundamental backdrop is percolating from a few angles. S&P 500 company commentary on earnings calls during the last reporting season has kept us in the camp that the real test from tariffs from a US corporate profitability, inflation / cost pressure and demand perspective is coming up in 3Q/4Q (in particular, we think there’s much to learn about the state of inventory and pull-forward dynamics), and questions about the health of the labor market have been sparked by recent government and private data releases.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
