The stock market has been on a rollercoaster, and Wall Street just got another gut punch: RBC Capital Markets lowered its S&P 500 year-end target from 6,600 to 6,200. If you’re wondering what’s behind this downgrade and whether it’s time to adjust your strategy, let’s break it down.

The Big Picture: Slowing Growth Hits Forecasts

RBC’s lead strategist, Lori Calvasina, pointed to one key factor behind the revised target—slower-than-expected economic growth. The firm’s economists now project U.S. GDP growth of 1.6% in 2025, down from a prior estimate of 2%.

Historically, when GDP falls within the 1.1%–2% range, stock market returns tend to be weaker. While this isn't a full-blown recession signal, it does suggest weaker corporate earnings, lower consumer spending, and increased market volatility—all of which impact stock prices.

Other firms have followed suit:

• Goldman Sachs cut its S&P 500 target from 6,500 to 6,200, citing economic uncertainty and trade policy risks.

• Yardeni Research lowered its target, emphasizing that market valuations are being adjusted for a slower economy.

What’s Driving the Market’s Struggles?

1. Trump’s Tariffs Are Shaking Things Up

The Biden-era economic playbook has been replaced with Trump’s return to aggressive trade policies. His new tariffs on steel, aluminum, and other imports have already triggered retaliatory measures from the European Union.

Markets don’t love uncertainty, and when tariffs start cutting into corporate profits, investors get nervous. The prospect of higher costs for businesses and weaker global trade is a direct hit to earnings growth expectations.

2. The Fed’s Next Move Is Unclear

The Federal Reserve’s upcoming meeting will be closely watched. While many expect interest rate cuts this year, sticky inflation and market volatility could push those decisions further out. If rate cuts don’t happen as fast as investors hope, expect continued choppiness.

3. Corporate Earnings Are Taking a Hit

Many companies have started trimming their Q1 earnings forecasts, reflecting the reality of a cooling economy. RBC now expects S&P 500 earnings per share to end the year at $264, down from a previous estimate of $271.

For context, when earnings expectations decline, stock prices typically follow. RBC also lowered its worst-case scenario for the S&P 500 to 5,550, which would represent another 2% drop from current levels.

What Should Investors Do Now?

If the market is headed for lower growth and higher volatility, the way you approach investing might need some adjustments. Here are three key takeaways:

1. Diversification Matters More Than Ever

With uncertainty dominating the headlines, it’s not the time to go all-in on any single sector or stock. Balancing your portfolio across different asset classes (stocks, bonds, commodities) and industries can help reduce risk.

Historically, sectors like utilities, healthcare, and consumer staples tend to hold up better in slower-growth environments. Meanwhile, growth stocks—especially in tech—could see more volatility.

2. Watch Interest Rate Trends Closely

If the Fed holds off on rate cuts, bond yields could remain attractive relative to stocks. Short-term Treasuries and high-quality bonds may offer a safer way to park cash while waiting for market conditions to improve.

On the flip side, if rate cuts do happen, growth stocks and riskier assets could rebound. Keep an eye on Fed commentary and inflation data.

3. Stick to Long-Term Strategies

It’s easy to panic when the market dips, but trying to time short-term swings rarely works. If you have an automated investment strategy in place—like those available on Surmount—staying the course can help smooth out volatility and take emotion out of decision-making.

Final Thoughts

RBC’s downgrade isn’t a market collapse warning, but it is a reminder that economic growth is slowing, and investors should be prepared for more volatility. While some analysts see buying opportunities, patience and risk management are key in uncertain times.

As always, stay informed, stay disciplined, and invest based on your long-term goals—not just the latest headlines.

Disclaimer: The information presented is for educational purposes only and not an offer or solicitation for any specific investments. Investments involve risk and are not guaranteed. Consult with a financial adviser before making any investment decisions. Past performance does not guarantee future results.