RBC Capital Markets has raised a caution flag on U.S. stocks, warning the S&P 500 could suffer a 5% to 10% pullback in the near term even as it 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 fall gets underway.
She cited three main risks: seasonality, midterm elections, and the Iran conflict. September has historically been a down month for the S&P 500 in five of the last 10 years, and midterm years tend to bring second-half equity volatility. RBC also noted that AI has become a campaign issue and betting markets suggest a Democratic sweep, which its research indicates would be less market-friendly.
Geopolitical tension intensified after reports that the U.S. military destroyed five Iranian tankers. Brent crude briefly topped $100 per barrel for the first time since July, while WTI climbed above $94. Dow futures fell more than 300 points, or 0.5%, with S&P 500 and Nasdaq 100 futures each down about 0.2%.
The yield on the 10-year Treasury note rose to 4.8%, near its highest since 2023. Deutsche Bank analyst Jim Reid said rising energy prices are dampening risk appetite across asset classes. Inflation is in sharp focus before Thursday’s producer price index and Friday’s consumer price index report, and ahead of next week’s Federal Reserve decision. The U.S. Treasury is also expected to announce an expanded buyback program for longer-dated government debt, potentially influencing yields.
AI-related shares offered some support, with Qualcomm, Corning and SanDisk rising before the open even as AMD and Intel traded lower. Apple’s product event is scheduled for Wednesday, where it is expected to unveil a foldable iPhone and premium iPhone 18 models. RBC maintained its 12-month S&P 500 target of 8,150, about 6% above recent levels.
