\n An avalanche of news has rolled on top of financial markets the past few\n weeks\u2014from big on-off-on-off tariff threats and U.S. economic indicators\n quickly shifting from sturdy to quite wobbly, to changes in the Federal\n Reserve\u2019s thinking, and also noteworthy foreign policy moves.\n <\/p>\n
\n Following are answers to the most common questions we\u2019re getting from\n clients, with the aim of bringing some clarity to this unique investment\n environment.\n <\/p>\n \n \n
\n A number of Q1 economic indicators have weakened and we think U.S. GDP\n growth for the quarter will fall short of the current 2.1 percent\n consensus forecast\u2014potentially well short\u2014when the preliminary data is\n reported on April 30.\n <\/p>\n
\n At this stage, we can\u2019t rule out that the anemic trends could spill into\n Q2.\n <\/p>\n
\n RBC Economics recently lowered its full-year 2025 U.S. GDP growth forecast\n to 1.6 percent from 2.0 percent. And just yesterday, the Fed downgraded\n its forecast to 1.7 percent from 2.1 percent.\n <\/p>\n
The Fed even hinted at rising stagflation risks.<\/p>\n
\n For those old enough to remember the full-blown, extreme stagflation of\n the 1970s\u2014a period of prolonged economic malaise coupled with very high\n inflation\u2014that\u2019s not what the Fed is alluding to. But the U.S. central\n bank does see the potential for GDP growth to slow this year to a\n below-average, subpar rate and for inflation to rise somewhat higher due\n to tariff risks.\n <\/p>\n
\n We think tariff fears have indeed weighed on some Q1 economic indicators,\n especially those tied to consumer, business, and investor sentiment, and\n there are signs this is prompting a pullback in spending overall.\n <\/p>\n
\n But some of the weakness also may be due to the normal ebb and flow of the\n business cycle.\n <\/p>\n
\n As our colleague Tom Garretson points out, this economic expansion has\n lasted for 58 months, which is just shy of the 60-month long-term average\n since 1933. The business cycle could simply be maturing and slowing down\n like it has many times before, and this process may have accelerated due\n to Washington policy uncertainties.\n <\/p>\n
\n While a recession is not our base-case forecast for this year, nor is it\n that of RBC\u2019s economists, we\u2019re monitoring important\n \n Regarding tariffs, our bottom line is: The higher the tariffs and the\n longer they last, the greater the negative impact on GDP.\n <\/p>\n \n When all is said and done, RBC Global Asset Management Inc. Chief\n Economist Eric Lascelles\n \n Of course, getting from here to there could continue to be challenging for\n markets.\n <\/p>\n \n But there are early signs that U.S. President Donald Trump\u2019s economic\n team\u2014including those who spent many years in very senior positions on Wall\n Street\u2014heard the market\u2019s message of the past few weeks to at least dial\n down the drama and roll out tariffs in a more orderly way.\n <\/p>\n \n It seems like U.S. Trade Representative Jamieson Greer will play a bigger\n role in coordinating the rollout of reciprocal tariffs in April, and that\n there will be a formal process for businesses and other key stakeholders\n to provide feedback before they are implemented.\n <\/p>\n \n Negotiations with some trading partners are already taking place, and this\n will continue with some of it covered in the press, and a lot of it\n probably behind the scenes. The process needs to play out.\n <\/p>\n \n We expect to see more tariff-related volatility for markets this year, at\n least.\n \n Given the economic vulnerabilities, RBC Capital Markets, LLC\u2019s Head of\n U.S. Equity Strategy Lori Calvasina recently lowered her year-end S&P\n 500 price target to 6,200 from 6,600. This translates into almost 9.3\n percent upside from the 5,675 closing level on March 19. This price target\n incorporates RBC Economics\u2019 2025 GDP growth forecast of 1.6 percent.\n <\/p>\n \n It\u2019s important to keep in mind what price targets are and what they are\n not.\n <\/p>\n \n Calvasina describes her process as \u201ca compass, not a GPS\u201d and elaborates\n that her price target is \u201ca signaling mechanism designed to reflect our\n general view of where stocks are headed.\u201d She considers five models and a\n wide range of economic and other data to determine her price target. We\n view this as a rigorous, well-thought-out process.\n <\/p>\n \n Importantly, she would revise the target \u201cif\/when new information relevant\n to our forecast becomes available \u2026\u201d\n <\/p>\n \n Calvasina also lowered her 2025 S&P 500 earnings forecast to $264 per\n share, well below the $271 per share Bloomberg consensus forecast of Wall\n Street industry analysts. We think the latter will end up coming down in\n the months ahead.\n <\/p>\n \n In terms of downside risk to the market, Calvasina\u2019s \u201cbear case\u201d for the\n S&P 500 is 5,550 at year end, slightly lower than the market\u2019s current\n level. This scenario incorporates more lackluster GDP growth of 0.1\n percent to 1.0 percent for full-year 2025. And with this \u201cbear case,\u201d\n we\u2019re mindful the S&P 500 could push lower than 5,550 before finishing\n around there at year end.\n <\/p>\n \n Given that the S&P 500 has declined 7.6 percent from its all-time high\n reached in mid-February through March 19, we think it\u2019s also useful to\n monitor contrarian indicators like the American Association of Individual\n Investors (AAII) survey, which attempts to measure investor sentiment.\n <\/p>\n \n The proportion of bulls has plunged to very low levels in the AAII survey,\n and the proportion of bears has surged to very high levels. Historically,\n this has signaled that the market could bounce, at least over a course of\n months.\n <\/p>\n \n When AAII bullish and bearish sentiment levels in the past were as extreme\n as they are currently, the S&P 500 has risen around 10 percent on\n average nine months later. This is close to the upside potential\n incorporated in Calvasina\u2019s 6,200 price target for the S&P 500.\n <\/p>\n \n \n In our view, portfolios should stay committed to equities up to but not\n beyond the long-term strategic allocation level. In other words, we\n wouldn\u2019t hold Overweight exposure to equities at this stage. Up to a\n Market Weight allocation seems more appropriate to us given the downside\n risks and upside potential.\n <\/p>\n \n We think it\u2019s prudent to hold a high proportion of quality stocks. These\n are stocks of companies led by strong management teams who have weathered\n business cycle shifts before and who have demonstrated effectiveness at\n managing expenses during periods of economic uncertainties, while also\n taking advantage of opportunities that may arise.\n <\/p>\n \n Within this category, we favour dividend growers and steady earnings\n growers, specifically \u201cgrowth at a reasonable price\u201d or \u201cGARP\u201d stocks.\n <\/p>\n","protected":false},"excerpt":{"rendered":" To say it\u2019s been a testing time for markets and investors is an understatement. Amid what can be confusing and rapidly shifting market dynamics, we give our thoughts on four key questions on investors\u2019 minds about the U.S. equity investment environment.<\/p>\n","protected":false},"author":15,"featured_media":27525,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2025-03-20T13:09:02","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[73],"tags":[153,420,768],"rbcwm_content_owner":[607],"rbcwm_need":[],"rbcwm_segment":[],"rbcwm_solution":[],"rbcwm_topic":[74],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-27524","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-high-inflation","tag-inflation-forecast","tag-tariffs","rbcwm_content_owner-pag","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"To say it\u2019s been a testing time for markets and investors is an understatement. Amid what can be confusing and rapidly shifting market dynamics, we give our thoughts on four key questions on investors\u2019 minds about the U.S. equity investment environment.","rbcwm_post_author":[1346],"rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[11937],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\nHow much longer is the tariff roller coaster ride going to last?<\/h2>\n
\n What are the downside risks and upside potential for the U.S. stock\n market?\n <\/h2>\n
\n What\u2019s the most prudent way to position equity portfolios at a time of so\n much uncertainty?\n <\/h2>\n