RBC Capital Markets has shared its first predictions for the S&P 500 in 2026. They set a price target of 7,100 for the second half of the year and expect earnings of $297 per share. These numbers are early estimates and may change as new information comes in. For 2025, RBC has slightly improved its outlook, raising the end-of-year price target to 6,350 from 6,250. This change is based on a higher earnings per share (EPS) forecast of $269. While this shows a stronger earnings expectation, it doesn’t guarantee a stable market.

Market Volatility and Cautious Optimism

Analysts recommend being careful, as the market is likely to face ups and downs in the coming months. Even though there’s an overall positive trend as we head into 2025 and beyond, various factors could affect this stability. Factors such as ongoing policy uncertainty, persistently high inflation, and fluctuating interest rate forecasts might weigh down market enthusiasm, despite some support from corporate earnings growth. The long-term prospects for the S&P 500 look good, with targets suggesting 6,350 by the end of this year and even higher in 2026. However, we need to prepare for potentially bumpy conditions in the short term. This caution is reasonable, especially after the August 2025 Consumer Price Index revealed stubborn inflation at 3.4%, keeping the Federal Reserve’s decisions a key focus. In this environment, it’s wise to explore strategies that take advantage of short-term fluctuations while still holding an optimistic long-term view. One idea is using call calendar spreads. This means selling higher-priced options for October 2025 while buying lower-priced, longer-term calls for December 2025 or March 2026. This strategy allows us to benefit from time decay in the short term while positioning ourselves for future gains.

Protective Strategies in a Volatile Market

With the VIX index around 19—up from summer lows in the teens—placing outright bets can be costly and risky. Protective strategies like collars can help. This involves buying a put to limit losses while selling a call to offset the cost, which can cap potential gains but help secure our investments. Adopting this defensive stance is wise, especially considering the market’s ups and downs we faced in late 2023 before the year-end rally. The revised earnings forecast of $269 per share for 2025 supports the market’s underlying strength. We must stay alert during the upcoming third-quarter earnings season. Any signs of weakness may challenge this support. Additionally, with the market now anticipating a 60% chance of a final rate hike at next week’s FOMC meeting, traders should be ready for a strong market response to either a rate hike or a cautious pause. Create your live VT Markets account and start trading now.

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