Investing.com -- RBC Capital believes that while U.S. stock market valuations have improved, they are still not at levels that would justify a broad buy signal.
"Overall, valuations have improved, but don’t, on their own, provide a buy signal for the broader market," said RBC (TSX:RY).
While the bank believes the Russell 2000 index has become more attractive, the S&P 500, its top 10 market cap names, and the Nasdaq 100 remain well above average valuation levels.
The recent market selloff, which saw the S&P 500 decline 8.6% from its highs, has been orderly derisking rather than panic selling, according to RBC’s trading desk.
"The VIX has moved up to December 2024 highs, but gauges of tail risk (SDEX and TDEX) have been more subdued," they wrote.
While valuations are not signaling a buy yet, RBC noted that the Russell 2000 index has outperformed the S&P 500 this week after retesting its 2024 relative low earlier in the year.
The firm also pointed out that AAII net bulls have fallen to crisis lows, which could indicate a buying opportunity—but cautioned that such signals can remain stuck at low levels for extended periods.
RBC has maintained its year-end 2025 S&P 500 price target of 6,600, though it acknowledges that the risk of a larger growth scare, leading to a 14-20% drawdown, has risen significantly.
"We remain in discovery mode, and think the US equity market is at a critical juncture."