RBC Capital Markets raised its outlook on the S&P 500 Index for the second half of this year, but it is doing so with trepidation.

The investment bank lifted its 2024 price target for the S&P 500 from 5,300 to 5,700, calling the move “a nervous raise” on Tuesday.

“The story we see in our data for 2024 is that the stock market has gotten a bit ahead of itself from a valuation perspective, as well as on some of our sentiment work, but that some of our tools (including one of our sentiment models) do still point to the potential for the S&P 500 to move a little bit higher between now and year-end,” analyst Lori Calvasina wrote in a note.

“We think risks of a near-term pullback are growing, but for now think one would be temporary and limited to the 5%-10% range.”

Calvasina said RBC considered itself a "tired bull" and "neutral" recently, but saw itself a bit more of an agitated and worrisome animal as it handed out its latest outlook on the S&P 500.

“Today, we would alter that slightly and characterize ourselves as a ‘nervous and jumpy bull’,” she wrote in her note.

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She said RBC saw “a lot of fog” in the outlooks for the second half of this year and 2025 given the U.S. consumer and upcoming election, the possibility of the U.S. economy hitting a soft patch and the tendency for stock volatility in presidential election years.

“We assume any pullback will end up being a pothole on the path to recovery (off conditions that were close to a recession in 2022) that will get back on track before too long,” she said.

“But if we are wrong and the economic forecast takes a turn for the worse in the months ahead, or looks like it's poised to do so in 2025, there is downside risk to our year-end 2024 call.”

For all of 2025, RBC has also issued a preliminary median price target of 6,159 for the S&P 500.

While we think there's too much fog to publish a 2025 price target, we have started to look at what our models are telling,” Calvasina wrote.

“We once again see a range of outcomes, with 5,900 at the low end, and close to 6,400 at the high end. Three of our models are in the 6,100 to 6,200 range,” she said.

“The signal we see in our modeling today is that stock prices have room to rise further in 2025 from a sentiment, valuation, cross-asset and political perspective.”

She also said RBC needs to see if next year’s GDP will beart current consensus of 1.8% and end up in the 2% to 4% range, which is more in line with the Federal Reserve‘s latest Summary of Economic Projections.

“This assumption seems reasonable given that GDP has been mostly underestimated by forecasters post-COVID[-19] with consumer buffers in particular being chronically underestimated,” she wrote.

“We need to get a little deeper into the soft patch to have confidence that this will end up being the case once again for 2025.”

RBC also needs to better understand the political agendas of both presidential candidates and the balance of power in Congress to see how taxes and spending will impact the U.S. economy in coming years as they might start to be priced in 2025, she said.

SPY Price Action: SPDR S&P 500 ETF Trust (NYSE:SPY), which tracks the S&P 500, gained 0.67% on Tuesday to close at $549.01.

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