RBC's S&P 500 Target at 6,250: A Contrarian Bet on 2026 Optimism Amid Tariff Turbulence

In a market rattled by trade wars and tepid growth, RBC Capital Markets has defied the gloom, raising its year-end S&P 500 target to 6,250—a bold call that hinges on contrarian sentiment and a calculated bet on 2026's brighter macroeconomic horizon. While near-term risks from tariffs and subpar GDP growth loom large, RBC's revised outlook argues that today's pessimism is overcooked, offering a rare buying opportunity. Let's unpack the trade-offs and whether this is a call worth heeding.

The Contrarian Case: Why Now?

The S&P 500's resilience in 2025—up 6.4% year-to-date despite 50% tariffs on Brazil and looming EU trade disputes—contradicts the doom-and-gloom narratives. RBC's upward revision reflects two key contrarian signals:

1. Extreme Sentiment, Extreme Opportunity
   Retail investor sentiment, as measured by the American Association of Individual Investors (AAII), has plunged to financial crisis lows, with net bulls at -54%—a level that historically precedes sharp rebounds.
   
   

When sentiment hits these levels, the odds of a 10–15% rally within six months surge. RBC's bull case of 6,400 assumes this pattern repeats, fueled by Fed rate cuts and delayed tariff negotiations.

1. 2026's Shadow Over 2025's Pain
   RBC's target embeds a two-speed economy: 2025's GDP growth is projected at just 1.6%, dragged down by tariffs and inflation, while 2026's GDP is expected to rebound to 2%. The equity market is forward-looking, pricing in 2026's fair value range of 6,200–6,800—a gap RBC believes will narrow as investors look past near-term noise.

The Bear Case: Tariffs, Margins, and a Fragile Recovery

Don't mistake RBC's optimism for complacency. The path to 6,250 is littered with risks:

• Tariff-Driven Inflation and Margin Squeeze
  The U.S. effective tariff rate has spiked to 15%—the highest since the Great Depression—sapping corporate margins. RBC slashed its 2025 EPS forecast to $264, a 2.5% downgrade, as companies absorb input costs.

• Growth at the Edge of Stagflation
  A 1.6% GDP growth rate is barely above stall speed, and three Fed rate cuts (starting in September) may not be enough to offset tariff-driven inflation. If the 10-year yield stays above 4.5%, the S&P 500 could slump to 5,000, per RBC's valuation model.

• Sector Vulnerabilities
  Tariffs hit hardest in sectors like autos, energy, and technology—critical to the S&P's performance. A 13% front-loaded surge in auto sales (March 2025) may mask a demand “air pocket” later this year.

The Balancing Act: Why the Bulls Win (Eventually)

RBC's call isn't about ignoring risks—it's about pricing in the probability of resolution. Three factors tilt the scales:

1. Tariff Negotiations Are a Moving Target
   While tariffs are high, RBC expects carveouts and delays (e.g., a 90-day exemption for critical goods) to ease pressure. The U.S. administration's focus on political optics ahead of 2026 midterms may force compromises.

2. The Fed's Backstop
   Even a 4.2% year-end yield on the 10-year Treasury is still supportive for equities. RBC's models show that rate cuts—even modest ones—can boost equity valuations by expanding P/E multiples.

3. The “Melt-Up” Catalyst
   If sentiment rebounds (AAII net bulls hitting +10%), a 17–35% S&P rally is plausible by year-end. This isn't just wishful thinking—post-GFC rebounds from similar sentiment lows averaged 26% over nine months.

Investment Strategy: Contrarian Buy with Hedges

RBC's target is a buy signal for the brave, but it demands selectivity:

• Buy the Dip: Use volatility to accumulate positions in dividend growers (e.g., utilities, consumer staples) and AI-leveraged tech (NVIDIA, Microsoft), which have powered the S&P's resilience.
• Avoid Tariff-Exposed Sectors: Autos (F, GM), industrials (CAT), and materials (LL) face margin pressures unless tariffs ease.
• Hedge with Treasuries: A 10% allocation to long-dated bonds (e.g., TLT) can cushion equity declines if yields spike.

Conclusion: A Risky, but Calculated Bet

RBC's 6,250 target is a contrarian call that assumes 2026's growth will outweigh 2025's tariff-induced pain. While the path is fraught with near-term risks—from Fed delays to inflation spikes—the market's current undervaluation (P/E of 21.5x vs. 23x historical average) and extreme pessimism make it a strategic entry point.

Investors should proceed with caution: Pair optimism with hedging, and stay nimble if trade tensions escalate. This isn't a “buy and hold” call—it's a position for those willing to bet on resolution over disruption.

Final Advice: Dip into quality stocks now, but keep a close eye on tariff negotiations and Fed signals. The road to 6,250 is bumpy, but RBC's vision isn't entirely unreasonable.

Data as of July 7, 2025. Past performance does not guarantee future results.