#夏日创作营 US stock market trend analysis: The key for the next year is not simply to judge whether the US stocks will rise or fall

RBC’s latest US equities outlook: Technology becomes the main line again; S&P 500 target 8,150 points in the next 12 months
In its latest published US stock strategy report, RBC Capital Markets has made a clear shift in its allocation recommendations across S&P 500 sectors.
The core signal released by the report is: RBC still favors the US stock market over the coming year, but the market’s upside path will not be smooth. The investment focus may shift again—from value stocks, small-cap stocks, and non-US markets—back to US large-cap technology, artificial intelligence, and mega-cap growth stocks.
In terms of sector allocation, RBC raised the Information Technology sector from “neutral weight” to “overweight,” while increasing Consumer Discretionary from “underweight” to “neutral.” In contrast, Communication Services was cut from “overweight” to “neutral,” and Utilities was reduced from “neutral” to “underweight.”
After the adjustment, RBC’s current three overweight sectors are Information Technology, Financials, and Materials.
Technology becomes the preferred growth sector again
RBC’s most important change this time is to re-establish Information Technology as the preferred growth sector. Over the past month or so, the technology sector has lagged the S&P 500 at times due to profit-taking from AI leaders, pressure on semiconductor valuations, and rotation in market style. But from a fundamentals perspective, technology companies’ earnings and revenue expectations remain among the strongest across all sectors, and capital has started flowing back into technology funds.
More importantly, RBC believes that although the technology sector’s overall valuation is not cheap, it is only slightly above its long-term average and has not reached a level of broad, out-of-control excess. Considering that technology stocks’ market capitalization share in the S&P 500 has already exceeded one-third, if investors continue to remain bullish on the S&P 500’s performance over the next year, it is hard to simultaneously be bearish on the technology sector. Opportunities within technology are not identical either.
RBC thinks that, for software, IT services, and also technology hardware, storage, and peripherals, the industries currently have both favorable trends in earnings revisions and relatively attractive valuations. Among them, the software sector’s valuation is already close to historical lows, but earnings expectations remain strongly upward, and the risk-reward profile is improving. By comparison, the semiconductor industry’s earnings growth is still very strong, but valuations remain at historical highs. Even with some recent adjustment, RBC still reminds investors that profit-taking in AI and semiconductor “hot stocks” can’t be ruled out again later in the year.
Excessive pessimism may already be in Consumer
RBC raised Consumer Discretionary from underweight to neutral, which does not mean it believes US consumers have fully recovered. Instead, RBC thinks the market’s pessimism toward the consumer sector may already be excessive.
At present, US consumer confidence remains weak, but some survey data show signs of stabilization. Historical experience suggests that when consumer confidence at the University of Michigan starts to rise, Consumer Discretionary and Consumer Staples tend to achieve relatively better returns. From an earnings standpoint, Consumer Discretionary’s earnings revisions are roughly balanced; although valuations are not low, they are not clearly expensive enough to justify continuing to be underweighted.
RBC believes that in sub-industries such as auto parts, diversified consumer services, and specialty retail, more opportunities are starting to appear. Therefore, this adjustment looks more like a repair targeted at “excessive pessimism,” rather than a strong bullish call on the consumer cycle.
Financials and Materials remain overweight
Aside from technology, RBC continues to overweight Financials and Materials. The Financials sector is one of the highest-rated sectors in RBC analysts’ surveys.
Analysts generally look favorably on the financial industry’s performance over the next 6 to 12 months and maintain a positive stance toward sector valuation, demand, and the US domestic policy environment. At the same time, earnings and revenue expectations for the financial sector are improving, and capital flows have turned positive. Banks, insurance, and consumer finance are the sub-sectors RBC considers relatively most attractive.
For capital markets businesses where investment banks like Goldman Sachs and Morgan Stanley operate, RBC is comparatively cautious.
The capital markets sector is not currently the most attractive direction within financials. However, its valuation is already clearly lower than last year, no longer sitting in obviously expensive territory. If M&A, IPOs, securities issuance, and private credit activity continue to recover, capital markets businesses may still benefit.
Materials also remains overweight. Its main advantage is relatively lower valuations; earnings and revenue expectations have turned positive again, and capital flows are starting to stabilize as well. Metals and mining and chemicals are among the more closely watched areas.
Energy fundamentals are strong, but cash flow remains the obstacle
The Energy sector was once an area RBC considered upgrading to overweight.
From a fundamentals perspective, the Energy sector’s earnings and revenue revisions are strong, its valuations are relatively cheap, and analysts generally maintain a positive view on demand, the policy environment, and future performance. At the same time, amid ongoing global geopolitical uncertainty, energy stocks can provide some portfolio “insurance” effect. However, RBC ultimately keeps Energy at neutral allocation, mainly because energy funds have recently experienced notably large outflows. This means RBC is not dismissing Energy, but instead believes there is currently a lack of sufficient confirmation from the capital-flow side. Once capital flows improve again, Energy could become one of the next sectors to be upgraded.
Industrials: solid fundamentals, but valuations are already too high
Industrials’ earnings and revenue expectations remain strong. Manufacturing activity, infrastructure investment, supply-chain restructuring, and AI infrastructure capital expenditures all provide long-term support for related companies. However, Industrials has already become one of the most expensive sectors in the S&P 500 by valuation, and the stronger inflows of capital it previously received have started to weaken.
Therefore, while RBC acknowledges its fundamentals, it temporarily keeps Industrials at neutral and does not recommend chasing further upside at these high valuation levels. Within Industrials, specialty services have relatively more attractive valuations and earnings revisions. Areas such as electrical equipment and construction and engineering may still have strong earnings trends, but their valuations have clearly risen.
Utilities cut to underweight
Utilities is the clearest underweight direction in this round of adjustments. Although Utilities’ earnings and revenue expectations continue to improve, RBC believes the sector currently has three main problems: valuation is too high, capital flows are too weak, and analysts lack enough confidence in future performance. In addition, as US midterm elections gradually approach, electricity prices and cost of living affordability could become policy focal points, which could create potential pressure on utilities companies’ pricing power and earnings expectations. As a result, RBC cut Utilities from neutral to underweight.
Within the sector, only independent power producers and renewable energy producers are relatively more attractive in terms of valuation and earnings revisions.
S&P 500 target for the next 12 months remains 8,150 points
On its overall market view, RBC keeps its target level of 8,150 points for the S&P 500 over the next 12 months. Based on the index level at the time the model is locked, this implies roughly 10.8% upside potential.
RBC’s core logic is that over the next year, US corporate earnings growth—especially for AI-related companies—can offset, to some extent, the negative impacts brought by rising interest rates, inflation pressure, and valuation contraction. Its valuation model assumes that the future S&P 500 price-to-earnings ratio gradually declines to around 24x, while applying a 5% haircut to the market’s consensus earnings expectations. Under assumptions of inflation around 3%, one Fed rate hike, and a 10-year US Treasury yield of about 4.5%, the model’s implied fair value for the S&P 500 is about 8,162 points, which is basically consistent with the official target of 8,150 points.
Therefore, RBC’s view for the coming year is not “valuations keep expanding endlessly.” Instead, RBC believes that earnings growth can drive the index higher even as valuations contract modestly.
Earnings growth in Q2 remains strong
Currently, the market expects S&P 500 component stocks’ earnings per share to grow year over year by about 24% in 2026’s second quarter. Although this is lower than the roughly 30% growth pace in Q1, it is still at a very strong level. Among companies that released financial results early, about 94% posted earnings above market expectations, higher than Q1’s 84%; but the proportion of companies with revenue above expectations is about 65%, lower than Q1’s 80%. This result suggests that US corporate profit performance remains strong, but the breadth of growth is not as optimistic as earnings numbers alone may suggest. Some companies may be delivering better-than-expected earnings through cost control, margin expansion, or capital-structure optimization, rather than relying entirely on rapid revenue growth.
Even more worth watching is that the trend of upward revisions to overall S&P 500 earnings expectations has recently weakened, but this weakening is mainly concentrated among the other 490 companies outside the top 10. For the top 10 S&P 500 companies by market value, the proportion of earnings expectation upgrades is currently around 90%, nearing historical highs. This indicates that mega-cap companies still hold a clear earnings advantage. Market leadership may shift back to large-cap growth stocks
So far this year, the market has experienced multiple style rotations. Value stocks, small caps, non-US markets, and companies with lower weight within the S&P 500 have all outperformed large-cap tech and mega-cap growth stocks at certain times. RBC thinks this kind of market “broadening rally” may continue in the near term, but it is more like a phase of trading rather than a fundamental change in long-term leadership.
Conditions for large-cap growth stocks to regain leadership are gradually forming.
First, profit growth from AI-related companies and the “Seven Tech Titans” over the next few years is still expected to be higher than that of other companies in the S&P 500.
Second, earnings expectations for the top 10 companies in the S&P 500 are improving again, while earnings revisions for other companies are starting to cool off.
Third, after recent adjustments, valuation pressure on large-cap technology stocks has already eased much more than previously.
RBC’s valuation model shows that the relative P/E of the S&P 500’s top 10 companies can already be explained by their long-term earnings growth advantage and is no longer as clearly overvalued as before. Therefore, RBC is warning that the market may be shifting back toward US stocks, the technology sector, AI themes, and mega-cap growth stocks.
Small-cap rallies may continue, but durability needs monitoring
The Russell 2000 has recently clearly outperformed the S&P 500, and small caps have also broken upward out of the previous trading range. Factors supporting small caps include improved manufacturing and employment data, positioning with high short exposure in the market, and the possibility that 2027 earnings growth could accelerate noticeably. Based on consensus expectations, small caps’ profit growth in 2027 is expected to exceed the S&P 500 overall and some AI leaders. However, RBC is not turning fully toward small caps as a result.
After the Russell 2000’s index annual reconstitution, valuations have come down from high levels, but they are currently only near the long-term average level and still not at an extremely attractive level. At the same time, small caps are more sensitive to financing costs and changes in interest rates. If the market reprices the risk of Fed hikes again, or if funds return to mega-cap technology stocks, small caps’ relative performance could be suppressed. Therefore, small caps still have opportunities in the short term, but for now they are unlikely to replace large-cap technology stocks as the long-term core main theme.
Potential pullbacks may be limited to 5% to 10%
Although RBC continues to like the market’s outlook over the next year, it does not believe the upside will be a straight line. As long as the US economy does not fall into a recession and the Fed does not launch a large-scale rate-hike cycle, RBC expects the normal pullback range for the S&P 500 is likely to be between 5% and 10%. Risks that could trigger a pullback include deterioration of Middle East geopolitical conditions, downward revisions to 2027 earnings forecasts, overly optimistic earnings expectations for AI and semiconductors, policy repricing triggered by midterm elections, and further increases in US Treasury yields. Especially worth watching is the 10-year US Treasury yield. If yields simply stay near current high levels, the stock market can still digest it; but if they keep breaking above 5%, or if the Fed enters a stronger hiking cycle, the market correction could exceed the typical 5% to 10% range.
Conclusion
RBC’s key takeaways from its latest report can be summarized as: the bull-market logic for US stocks is not over yet, but investors need to refocus on earnings quality and sector selection. Technology, Financials, and Materials remain RBC’s top three favored sectors. Pessimistic expectations for Consumer Discretionary may have been overdone and there is some room for repair. Energy has both attractive fundamentals and valuations, but capital flows still need to improve. Industrials has strong earnings, but valuations are too high. Utilities has been cut to underweight due to valuation and policy risks. From the market style perspective, rotations among small caps, value stocks, and non-US markets over the past period may not be fully finished yet, but the earnings advantages of large-cap tech, AI, and mega-cap growth stocks remain clearly visible.
As technology stock valuations gradually correct, market leadership is approaching a new turning point. For investors, the key for the coming year is not simply deciding whether US stocks will rise or fall, but finding sectors and companies whose earnings can keep delivering sustainably, whose valuations are relatively reasonable, and that also have capital support—while the index still has room to rise.