RBC lifts year-end S&P 500 forecast as AI sectors fuel rally

RBC Capital Markets raised its year-end target for the S&P 500 on Friday, citing resilient earnings growth and continued strength in artificial intelligence-linked sectors.

The Canadian brokerage increased its target for the benchmark index to 7,900 from 7,750.

The revised forecast implies a 7.7% upside from Thursday’s closing level of 7,335.66.

The move comes as US equities continue to rally to record highs, supported by investor enthusiasm surrounding AI-related investments and expectations of strong corporate profit growth.

The S&P 500 also recorded its biggest monthly percentage gain since November 2020 last month, reflecting growing confidence among investors despite broader macroeconomic concerns.

AI-linked firms continue to support valuations

RBC said positive earnings revisions from technology and AI-linked companies have continued to support equity valuations.

The brokerage added that strong demand for AI infrastructure has helped maintain momentum in large-cap growth stocks.

According to RBC strategists, US companies have remained resilient despite higher costs and ongoing geopolitical risks.

The firm noted that this resilience has helped keep market leadership concentrated among large-cap growth names, particularly those linked to artificial intelligence and technology infrastructure.

RBC’s bullish stance follows similar actions from other major Wall Street brokerages, including JP Morgan and Barclays, which also raised their targets for the S&P 500 last month.

Those firms cited easing geopolitical risks and improving earnings momentum as key reasons behind their upgraded outlooks for US equities.

Rally continues despite macroeconomic uncertainty

RBC strategists said the market rally has persisted despite a difficult macroeconomic backdrop.

The firm highlighted sticky inflation, uncertainty around the timing of US interest rate cuts, and lingering geopolitical risks as some of the challenges still facing markets.

Even with these concerns, investor appetite for equities has remained strong, particularly in sectors benefiting from AI-driven spending and infrastructure demand.

The brokerage suggested that continued earnings resilience has helped offset concerns around monetary policy and inflation pressures.

RBC cuts healthcare sector rating

Separately, RBC downgraded US healthcare stocks to “market weight” from “overweight.”

The brokerage cited earnings revisions, fund outflows, and policy uncertainty as the main reasons behind the downgrade.

RBC said that although valuations in the healthcare sector remain attractive, the broader outlook has become less favourable due to these pressures.

The downgrade reflects growing caution around healthcare stocks at a time when investors continue to favour sectors tied to technology growth and artificial intelligence-related investment themes.