Welcome to RBC's Markets in Motion podcast, recorded May 4th, 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, US equity market valuations are on the rise, but don't look topped out yet. We remain constructive on the US equity market in the year ahead, recognizing that the path may not be linear.
- Second, last week's earnings reports continued to point to resilient outlooks with a dose of caution fueled by a strong start to the year, highlighted challenges to consumer resiliency in restaurants and travel but otherwise a reiteration of the cautious but stable theme, and alluded to a complex web of buffers in place for companies regarding the impact of the war.
- Third, things that jump out in our other updates include a sharp spike in company references to geopolitics in April, a stall in investor sentiment last week, and a pick-up in betting market expectations for a split Congress in the midterms.
If you'd like to hear more, here's another five minutes.
Starting with 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.
Moving on to Takeaway #2: our thoughts from last week's earnings, when 168 S&P 500 companies reported.
- It would take an hour for this podcast for us to run through everything we learned. For now, here are the three things that jumped out to us broadly:
- First, 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.
- Second, 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 yr/yr.
- Third, 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.
Overall, this reinforces a few different thoughts when we think about our S&P 500 forecast. First, though some downward adjustments to late-2026 and 2027 EPS forecasts may ultimately be needed in non-Tech/AI related industries, there also appears to be some inherent resiliency to the earnings forecast for the S&P 500 (even outside of the Tech/AI contribution). Second, there is likely to be some P/E compression in the S&P 500 due to higher inflation rates relative to the highs of last year. These are both ideas that we've already captured in our S&P 500 price target, specifically through our valuation/EPS modeling when we haircut bottom-up consensus EPS growth forecasts for 1Q27 (trailing 4Q basis) by 5% and input inflation assumptions into our P/E calculation that are materially higher than consensus for that time period. Third, calm corporates may help fend off layoff and recession concerns among equity investors. In this context, we'll be keeping a close eye on c-suite sentiment surveys going forward.
Wrapping up with Takeaway #3: Things that jump out in our other updates.
- First, we've been tracking a few issues quantitatively in company transcripts. Geopolitics referenced have spiked sharply, similar to the highs around tariffs last year. But layoff references remain low.
- Second, net bulls in the AAII survey is another way we're keeping tabs on the stock market's temperature. We're not seeing signs of overheating their either, as net bulls fell to -1.6% last week, down from +11.6% the prior week.
- And finally, some mid-term musings. Betting markets are showing some slight moderation in expectations Democrats will sweep Congress in the midterms this fall, which has been the consensus expectation since last fall, while expectations for a Republican Senate/Democratic House have crept higher recently. This matters because for much of the past few years the S&P 500 has been positively correlated with trends in favorable outcomes for Republicans in election or Trump job approval and favorability.
That's all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.