RBC Capital Markets warns of 10% US stock pullback risk as midterms approach

Wall Street’s pre-election jitters are starting to show up in research notes. RBC Capital Markets strategists, led by Lori Calvasina, are warning that the S&P 500 could drop anywhere from 5% to 10% in the weeks ahead, with seasonal weakness and midterm election uncertainty doing the heavy lifting on the downside case.

The firm published its assessment on September 9, 2026, flagging that the index had entered one of the calendar’s historically least forgiving stretches, while November 3 midterms loom as a potential catalyst for market turbulence.

Why September and midterms make a difficult combination

September has a reputation problem on Wall Street, and the data mostly backs it up. RBC noted that the month has produced declines in five of the past ten years, making it a reliable source of heartburn for equity investors even in otherwise strong market environments.

Layer midterm elections on top of that baseline weakness, and you get a specific set of pressures that RBC is tracking closely. Betting markets have begun pricing in a higher probability of a Democratic sweep, an outcome the firm characterizes as less favorable for equities, at least in the short term. There is also a growing political conversation around AI regulation and potential legislative backlash against the technology sector, which has been among the market’s biggest contributors to gains in recent years.

Geopolitics is adding another variable. Ongoing tensions tied to the unresolved Iran conflict are weighing on consumer sentiment, which feeds into corporate earnings expectations through reduced spending and elevated uncertainty.

RBC’s framing is deliberately measured. The firm describes potential 5-10% drawdowns as “garden-variety” by historical standards, meaning the kind of routine correction that markets digest and move past without lasting structural damage.

The bull case is still intact

Despite the near-term caution, the firm kept its 12-month S&P 500 price target at 8,150. Based on where the index closed on September 8, 2026, that target implies roughly 6% upside from current levels over the next year.

The firm’s confidence in the 12-month case rests on a specific set of conditions holding. Calvasina and her team expect pullbacks to stay within that 5-10% range as long as there are no major surprises on the recession front or sharp, unexpected interest rate increases.

What investors should be watching

The midterm election outcome is the most obvious pressure point. A Democratic sweep, if it materializes, could trigger the kind of knee-jerk selloff RBC is anticipating, particularly in tech and AI-adjacent sectors where regulatory risk would immediately reprice.

The interest rate picture is the third variable. RBC’s base case assumes no significant rate shocks, which means any surprise from the Federal Reserve in either direction would shift the probability distribution considerably. A hawkish surprise would reinforce the pullback case and potentially push drawdowns beyond the 10% threshold the firm is currently treating as its outer bound.

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