Takeaway #1: US equity market valuations are on the rise, but don't look topped out yet.
With the S&P 500 closing Friday up more than 14% from the March 30th, 2026 low, the stock market's temperature has been rising (i.e. valuation levels have been climbing). Our analysis suggests that there is still some room for the broader US equity market to run before the highs that ended up being a ceiling are seen again.
For example, the bottom-up market cap weighted S&P 500 NTM P/E is trading a bit above 25x, still well below its high of more than 28x seen last year (a level that was close to the previous peak around COVID).
Meanwhile, the Russell 2000 FY2 P/E is trading around 16.6x, still well below the +18x level that marked its peak earlier this year (which was close to that index's late-2024 high).
And while it is now above its five-year high, the US/non-US relative NTM P/E also still has some room to travel before hitting its own 2025 high.
Throughout the first quarter of 2026, we have maintained our 12-month-forward S&P 500 price target of 7,750. In recent weeks, we have also highlighted how climbing the wall of worry is often the path higher for US equities in times of distress. That continues to be how we think about the stock market today. We did acknowledge in our meetings last week that we suspect that the path to 7,750 will not be a linear one. Downward adjustments to 2H26 and 2027 EPS forecasts – at least outside of the mega cap Tech/AI-related names, the mid-term elections, and profit-taking on semis/AI winners are a few possible sources of volatility that come to mind. Our valuation indicators may help us identify when stocks get overheated again, but we don't think we've gotten to that point yet.
"We found evidence of a complex web of buffers in place for companies regarding the impact of the war in Iran for a period of time."
Lori Calvasina, Head of US Equity Strategy, RBC Capital Markets
Takeaway #2: Our thoughts from last week's earnings, when 168 S&P 500 companies reported.
On the general tone we are still seeing resilient outlooks with a dose of caution. I would add that what became clear last week is that this is fueled in part by a strong start to the year for many companies. One thing new, we saw many references to FX tailwinds across a number of industries. We also saw an emphasis by companies on passing through higher costs and broadly the war seems to be being treated as a price shock not a supply shock.
On consumer, we saw some clear challenges to consumer resiliency in restaurants and travel commentary from a few companies, but otherwise saw a reiteration of the cautious but stable theme. We did see a number of references to tax refunds being higher year over year.
We found evidence of a complex web of buffers in place for companies regarding the impact of the war in Iran for a period of time. We were struck by how many companies emphasized utilizing the playbooks and skill sets for managing through crises that they'd developed around COVID, tariffs, and other stress events in dealing with the challenges emanating from the Middle East situation. A number of companies referenced assuming the conflict will go through 2Q.
And we are still seeing references to hedging and inventory buffers with one company noting they had enough poly to get through the end of the year.
