Тhe bull is limping, but still moving forward

In a note to clients, Lori Calvasina, head of U.S. equity strategy at RBC, cut her year-end price target on the S&P 500 to 2,890 from 3,000.

“The bull is limping,” Calvasina said, “but still moving forward.”

In cutting her outlook for the stock market, Calvasina cited, among other factors, the impact that rising interest rates and inflation will have on corporate margins and the chances for multiple expansion — that is, rising price-to-earnings ratios — in a rising rate environment.

“With today’s S&P adjustments, we are signaling that we are still constructive on stocks on a 6-12 month view, but that our enthusiasm is a notch lower than where we were to start the year,” Calvasina adds.

“Our targets are driven by the math, but they do sync up with our view on where markets are headed. We expect 2018 to be a good year, but believe returns will be less robust than those seen 2017.”

RBC’s new target implies stocks will gain 8.1% in 2018.

Meanwhile, first quarter earnings season is set to get underway this week and show that both a strong economy and the benefits of tax cuts will see profits grow by double-digits. Calvasina expects earnings will grow 14% over the prior year in 2018.

Source: Bloomberg Pro Terminal

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