Royal Bank of Canada raises S&P 500 target to 8,150 points, while cautioning the rally will not be smooth sailing.

Lori Calvasina, chief U.S. equities strategist at Royal Bank of Canada Capital Markets (RBC Capital Markets), lifted her 12-month target for the S&P 500 by 250 points to 8,150 on Monday. Compared with last Friday’s closing level, the revised target implies a 10.8% upside potential. The bank believes the U.S. stock market still has room to rise, but warns the rally will not be smooth sailing. In a research note sent to clients on Monday, Calvasina wrote: “We still view this forecast as optimistic but not unrealistic. Our core view is that the stock market will rise overall over the next year, though the trend will not be a straight-line rally.” The target hike is partly driven by positive signals from earnings per share (EPS) and valuation expectations. The strategist forecasts adjusted trailing four-quarter EPS will reach $337 in the first quarter of next year. Meanwhile, her model still retains conservative assumptions, and she warns market volatility is unavoidable during the rally, with the biggest risk being the Federal Reserve resuming interest rate hikes. Data from CME Group’s FedWatch Tool shows the market is pricing in a 64% probability of a rate hike at the Fed’s September policy meeting.