RBC Warns S&P 500 Could Drop 10% as Iran War, Inflation, and Midterms Weigh on Markets
TLDR
- RBC Capital Markets warns the S&P 500 could pull back 5-10% in the near term
- September seasonality, midterm elections, and the Iran war are the three main risks
- U.S. and Iran military strikes pushed Brent crude briefly above $100 a barrel
- Treasury yields rose to 4.8% as inflation fears mount ahead of Friday’s CPI report
- RBC still holds a 12-month S&P 500 target of 8,150, about 6% above recent levels
RBC Capital Markets has raised a caution flag on U.S. stocks in the near term, warning that the S&P 500 could fall as much as 10% even as the bank keeps a positive 12-month outlook.
Lori Calvasina, head of U.S. equity strategy at RBC, said risks of a “garden variety pullback of 5-10% have grown” as the fall season gets underway.
She pointed to three specific reasons for the caution.
Seasonality, Elections, and War
The first is seasonality. September has been a down month for the S&P 500 in five of the last 10 years.
The second is the U.S. midterm elections. RBC noted that midterm years have historically brought stock market volatility in the second half. The bank also flagged that AI has become a campaign issue, and that betting markets are pointing toward a Democratic sweep, which RBC’s research suggests would be less friendly to markets.
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