RBC Capital Markets has increased its year-end forecast for the S&P 500, joining a growing number of Wall Street firms adopting a more bullish stance on U.S. equities. The upward revision comes as corporate earnings continue to outperform expectations and inflation moderates, helping stabilize market sentiment after a volatile two-year period. For investors globally — including Israeli institutions with significant U.S. equity exposure — the shift signals renewed confidence in the durability of the U.S. economic cycle.

RBC’s upgraded outlook reflects stronger earnings momentum

RBC analysts cited resilient corporate profitability as the primary driver behind their raised target. Despite concerns over tightening financial conditions, U.S. companies — particularly in technology, industrials, and communication services — have delivered stronger-than-expected margins. Robust demand for AI infrastructure and services has amplified earnings among mega-cap growth stocks, which continue to exert outsize influence on index performance.

The bank’s bullish adjustment also reflects improving visibility around inflation. Slowing price pressures have eased concerns over additional Federal Reserve tightening, helping stabilize valuations that had appeared stretched earlier in the year. RBC emphasized that if earnings trends hold and economic growth avoids a sharp slowdown, the S&P 500 could justify trading at higher multiples.

Wall Street sentiment broadens as macro risks recede

RBC’s move aligns with a broader recalibration among major financial institutions. Goldman Sachs recently pointed to improving consumer demand and strong labor-market dynamics as reasons for a constructive equities outlook. Meanwhile, JPMorgan, though more cautious, acknowledged that recession risks have declined relative to prior forecasts.

This collective shift stands in contrast to the uncertainty seen in 2022–2023, when aggressive rate hikes and inflation shocks drove heightened volatility. Now, with the Federal Reserve signaling a potential policy pivot later in the year, investors are reassessing risk exposures. For Israeli markets — closely tied to global capital flows — sustained optimism from major Wall Street firms may support renewed foreign investment and improved liquidity conditions.

Valuations rise, but risks remain for equity markets

Even as sentiment improves, analysts warn that several risks could limit upside. Equity valuations have expanded meaningfully, particularly in AI-linked sectors, raising questions about market concentration. Additionally, geopolitical tensions, supply-chain disruptions, and uncertainty around the U.S. election cycle could introduce volatility later in the year.

Corporate guidance will remain a critical indicator. Companies have so far managed cost pressures effectively, but sustained margin improvement depends on stable input prices and ongoing demand strength. Should economic data weaken or inflation reaccelerate, expectations for earnings and index performance may need to adjust quickly.

Looking ahead, investors will focus on upcoming earnings seasons, inflation prints, and Federal Reserve communications as they assess whether the bullish shift can endure. If growth remains stable and monetary policy eases as expected, Wall Street’s upward revisions could gain further traction. However, the market’s elevated valuation levels mean that positive catalysts must materialize consistently for the S&P 500 to sustain its momentum into 2025.