Welcome to RBC’s Markets in Motion, recorded January 5th, 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. The big things you need to know: First, after updating our models for end of year, we are reiterating our 7,750 12-month S&P 500 price target, noting that the signal from our sentiment model deteriorated since our last update in early December while the signal from our GDP model strengthened. Second, a few things that jumped out in our other updates included the recent divergence in the size and style trades, the S&P 500’s inability to recapture last summer’s peak on the rate of upward EPS estimate revisions, and the latest results of the Duke CFO survey where optimism picked up on one’s own company and the broader economy accompanied by an optimistic view on the productivity benefits coming from AI.
If you’d like to hear more, here’s another five minutes.
Starting with Takeaway #1: Reiterating Our 12-Month S&P 500 Price Target of 7,750
As a reminder, we are updating our price target monthly, and use five models to derive it. We’ve repriced them for the 12/31/2025 close and updated the macro assumptions and other inputs into them for changes in December. There are three major takeaways:
- First, after running through this exercise, 7,750 is approximately the median output from our five models which focus on investor sentiment, valuation and EPS, the appeal of stocks relative to bonds, the economic backdrop, and the monetary policy backdrop.
- Second, the range of outputs tightened from roughly 7,200–8,000 in the early-December edition of our analysis to roughly 7,500–8,000 in our early-January update.
- Third, the signals shifted for two of our models in opposite directions.
- The signal from our GDP analysis improved since early December. As of early January, the consensus forecast for 4Q26 real GDP (yr/yr) had improved to 2.1%. This is not surprising to us given the bullish tone on the economic outlook that we heard from many of our US-based clients in December. The S&P 500 tends to see an average move of +10.3% on a 12-month time frame when real GDP (yr/yr) has ended up in the 2.1-3% range since 1990. The prior signal was a +5.7% gain, the average return when real GDP (yr/yr) is in the 1.1–2% range.
- The signal for our sentiment model deteriorated. At the time of our early-December analysis, AAII net bulls had fallen to more than 1 standard deviation below the long-term average, into a range typically followed by a 15% 12-month-forward return in the S&P 500. Since that time, net bulls have rebounded to levels between average and 1 standard deviation above the average, taking this indicator into a range that has been accompanied by a 9% 12-month-forward return in the S&P 500 over time.
Suffice it to say that there’s been no major change in our thinking about the broader market and key positioning calls as the new year gets underway. We continue to anticipate another solid year of S&P 500 performance (roughly 13% vs. the 12/31/2025 close), supported by continued solid economic growth, additional/modest easing from the Fed, and solid earnings growth (also 13% based on bottom-up consensus views).
Moving on to Takeaway #2: What Else Jumps Out on Our Latest Updates
- First, the size and style trades aren’t moving in lockstep. Within Large Cap, Value outperformed Growth as 2025 wound down, and the biggest market cap names showed signs of a stall relative to the rest of the market. But the second burst of Small Cap leadership that started up again in December fizzled as the year came to a close. On the topic of Small Caps, we found it interesting as we ran through end-of-year updates that they no longer look out of favor on CFTC’s data for US equity futures positioning. We continue to see intriguing earnings dynamics for Small Caps on a few of our charts and think a continued rebound in economic optimism could help this corner of the market outperform in a more sustainable way, but are also concerned that key indicators that are usually a signal that a Small Cap leadership cycle is underway – a pick-up in ISM manufacturing and jobs growth – remain elusive.
- Second, we will be keeping a close eye on the rate of upward EPS estimate revisions for the S&P 500 in the upcoming reporting season. Whether we’re looking at the S&P 500, the top 10 market cap names in the S&P 500, or the rest of the index, the rate of upward EPS estimate revisions – our favorite gauge of earnings sentiment – remains in positive territory but has not yet been able to recapture its late-summer high. We think the deceleration in earnings sentiment that occurred in recent months contributed to choppy conditions in stocks in November.
- Third, sentiment ended 2025 elevated in several corners of financial markets. Echoing what we’re seeing in the AAII survey, where net bullishness has surged but isn’t quite back to all-time extremes, optimism on the stock market remains extremely elevated in the Conference Board consumer survey. Fresh reads from CFTC on US equity futures positioning also point to elevated sentiment among institutions – though similar to AAII, net bulls positioning is near one standard deviation above average, not two standard deviations. It would not surprise us to see sentiment broadly to get to a place in coming quarters where investor sentiment is stretched enough to signal a near-term pullback, but we don’t seem to be there yet.
- Fourth, CFOs are feeling a little bit better as 2026 begins. Over the holidays, the soft data we were most curious about was the quarterly Duke CFO survey. Optimism on both one’s own company and the broader economy remained subdued but did pick up. Tariff concerns fell, but tariffs remained the top item on the list of worries. The survey also revealed some optimism about productivity benefits from AI in the year ahead, but few seemed to be anticipating major impacts to costs and employment.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.