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RBC boosts its S&P 500 price target by 5%, citing the Fed's continued stimulus efforts

Published by Business Insider on Tue, 04 May 2021

<p><img src="https://static1.businessinsider.com/image/604bbd60fea127001886a838-2000/gettyimages-1207596525.jpg" border="0" alt="trader nyse pray" data-mce-source="Getty Images / Bryan R. Smith"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul><li><strong>The current easy monetary policies of the Federal Reserve should continue to support stocks into year-end, according to a Tuesday note from RBC.</strong></li><li><strong>The bank raised its 2021 S&amp;P 500 price target by 5% to 4,325, representing potential upside of about 4% from current levels.</strong></li><li><strong>"We see a little more room for stocks to climb higher this year, but we also continue to expect a pullback or heightened volatility in the market," RBC said.</strong></li><li id="recirc"><strong><a href="https://newsletter.businessinsider.com/join/4np/10-things-opening-bell'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest" target="_blank" rel="noopener">Sign up here for our daily newsletter, 10 Things Before the Opening Bell</a>.</strong></li></ul><hr><p>The S&amp;P 500's year-to-date gain of more than 10% could extend further by year-end as the Fed continues to implement easy monetary policies, according to a Tuesday note from RBC.</p><p>The bank raised its year-end S&amp;P 500 price target by 5% to 4,325, up from 4,100, as it expects slight multiple expansion "commensurate with the modest expansion we are seeing in the Fed's balance sheet." A move to 4,325 in the S&amp;P 500 by year-end would translate to a 15% gain for 2021, just below 2020's return of about 18%.</p><p>The Fed is buying $120 billion worth of bonds every month, and continues to keep the Fed funds rate anchored to near 0%. A jump to 4,325 in the S&amp;P 500 would represent upside potential of about 4% from Tuesday morning levels.</p><p>"We see a little more room for stocks to climb higher this year, but we also continue to expect a pullback or heightened volatility in the market," RBC said.</p><p>A key downside factor that could spark a sell-off in stocks includes the Fed beginning to <a href="https://markets.businessinsider.com/news/stocks/consumer-spending-fed-bond-buying-tapering-goldman-sachs-2021-3-1030144587">taper its monthly bond purchases earlier than anticipated</a>, RBC said. Most expect the Fed to begin tapering in 2022, but if they begin in 2021, that would likely scare investors.</p><p>Additionally, the <a href="https://markets.businessinsider.com/news/stocks/stock-market-forecast-outlook-cyclical-economic-growth-outperformance-fundstrat-lee-2021-5-1030379948">reflation trade into cyclicals and out of growth</a> could present heightened volatility for the stock market since it is mostly dominated to tech, internet, media, and telecom stocks, RBC said.&nbsp;</p><p>"Market internals may end up looking more constructive than the index itself given the bias of the S&amp;P 500 to what has become a defensive bucket of market cap," RBC explained. But with a return of stock buybacks and dividends this year, RBC's year-end target remains biased to the upside.&nbsp;</p><p><img src="https://static6.businessinsider.com/image/609160d734af8d001859ac50-1512/rbc note chart.JPG" border="0" alt="rbc note chart.JPG" data-mce-source="RBC"></p><p><a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-rbc-boosts-sp500-price-target-fed-stimulus-efforts-2021-5-1030385957#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/what-its-like-make-beer-with-picobrew-c-home-brew-2020-3">We tested a machine that brews beer at the push of a button</a></p>
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