This new target for the S&P 500 is very nearly Wall Street's highest. Here are the trades to make.

By Jamie Chisholm

Earnings and a supportive economic backdrop should help stocks, says RBC

RBC has just boosted its S&P 500 target.

Hopes that the war with Iran will officially end soon and revived excitement over AI-related stocks have helped the S&P 500 register another record high this week.

But arguably the biggest driver of the latest rally is a better-than-expected first-quarter corporate earnings season. It's the prospect of improving company profits - along with a supportive economic backdrop - that has led RBC Capital Markets on Friday to hike its 12-month S&P 500 target to 7,900 from 7,750.

That puts RBC toward the top of Wall Street S&P 500 SPX targets, though comparisons are tricky because most other analysts are looking at the end of 2026. Deutsche Bank's year-end target currently tops the charts at 8,000.

The RBC team, led by Lori Calvasina, head of U.S. equity strategy, explains that "the implied fair value level for the S&P 500 from our valuation/earnings per share test has improved due to the improvements in bottom-up consensus [earnings] forecasts for the next four quarters."

Despite its optimism, the RBC team highlights what it's calling "tactical risks" that need monitoring.

"We are keeping an eye on valuation levels in the S&P 500 and Russell 2000, which could indicate a return of short-term overbought conditions when they return to past highs, but aren't seeing that condition in place broadly yet," the team says.

One possible cause of a pullback later this year could be if the war in the Middle East war causes downward adjustments to late 2026 or 2027 earnings-per-share outlooks.

Profit taking in semiconductor stocks SOX, "which have been an important pillar of the recent move in the S&P 500 and have strong earnings revisions trends but look pricey," is another risk flagged.

Then there's the political backdrop. The U.S. midterm elections historically tend to dampen stock-market optimism, as was seen in 2018 and 2022, RBC notes. Indeed, the bank reckons that the 9.1% drawdown in the S&P 500 in the first quarter of this year was partly because prediction markets saw an increased chance of a Democratic clean sweep.

However, "anticipation of a split Congress has been on the rise again in betting markets (a possible tailwind to U.S. equities of late) even though it is not yet the most expected outcome," the RBC team adds.

Two more possible stumbling blocks for stocks are a continuation of the Iran war and a flare-up in private-credit concerns, though, regarding the latter, RBC views it as "more of a narrative problem than a fundamental one."

In terms of where investors should be positioned, RBC has a bias in favor of growth stocks over value within the large-cap cohort.

"When we look at earnings sentiment, the rate of upward EPS estimate revisions has been stronger for growth broadly and the biggest market cap names in the S&P 500 in particular than value and the rest of the market," RBC says. Furthermore, "impacts from the Middle East conflict seem likely to be more of a headwind for earnings revisions for value and the rest of the market going forward."

The team there also agrees with the market consensus that net-income growth may be stronger in the AI basket than the "Magnificent Seven" megacap tech stocks in both 2026 and 2027, and that should support a broadening of leadership within the AI theme.

The markets

U.S. stock indices SPX DJIA COMP are higher at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y nudge lower. The dollar index DXY is down, while oil prices (CL.1) are slightly higher and gold futures (GC00) are trading around $4,728 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              7337.11    1.78%   7.51%   7.18%   29.54% 
   Nasdaq Composite                                                     25,806.20  3.67%   13.07%  11.03%  43.94% 
   10-year Treasury                                                     4.372      -0.70   3.20    20.00   -1.70 
   Gold                                                                 4724.5     2.14%   -0.97%  9.06%   41.92% 
   Oil                                                                  94.25      -8.05%  -1.44%  64.17%  54.36% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The cease-fire between Iran and the U.S. is on shaky ground after the two sides traded fire.

The U.S. nonfarm-payrolls report for April showed a net 115,000 jobs were added, much higher than forecasts of 55,000, but still down from an upwardly revised 185,000 in March. The unemployment rate came in unchanged and in line at 4.3%.

Other U.S. economic data due Friday include the preliminary May consumer-sentiment report, released at 10 a.m.

CoreWeave shares (CRWV) are sliding after the compute provider revealed worse-than-expected losses and the need for greater capex.

Shares of Akamai (AKAM) are surging after the company announced it will supply cloud infrastructure services to a leading AI lab in a seven-year agreement worth $1.8 billion.

Cloudflare's stock (NET) is diving despite the cloud security group beating earnings forecasts, and saying AI productivity meant its could shed at least a fifth of its workforce.

Chicago Fed president Austan Goolsbee will appear on CNBC at 11:05 a.m. and on Bloomberg at 2:20 p.m.

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The chart

This chart showing Wednesday's record $2.6 trillion of notional S&P 500 call-option buying has commentators worried that the option tail is wagging the equity dog - and that may be a big problem when animal spirits fade.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   AMD     Advanced Micro Devices 
   TSM     Taiwan Semiconductor Manufacturing 
   IREN    IREN 
   MU      Micron Technology 
   AAPL    Apple 
   MSFT    Microsoft 
   PLTR    Palantir Technologies 

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Beyond the newsroom

MarketWatch Picks: 'Is retiring at 50 realistic?' I'm single, 47 and earn $260K a year. I have $1.1M in a brokerage account and $1.8M in my 401(k).

-Jamie Chisholm

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(END) Dow Jones Newswires

05-08-26 0930ET