Washington turmoil has bull 'limping' but S&P at 3,000 still looks likely: RBC

The nonstop stream of (often bad) news out of President Donald Trump's White House has become a liability for Wall Street, one market strategist told CNBC recently, but market benchmarks may still set new highs nevertheless.

"The bull case has eroded a little bit," Lori Calvasina, head of equity strategy at RBC Capital Markets, told CNBC's "Futures Now" last week. "It feels like the bull is limping a little in here, but generally we see more reasons to be positive than negative."

The S&P 500 Index should still produce healthy gains for the full year, though political uncertainty has introduced a level of volatility in the near term, says Calvasina.

"Washington has turned into more of a headwind than a tailwind recently," she said, suggesting the constant personnel changeovers and turmoils were beginning to make investors nervous.

"It's enough to slow down the ascent a little bit, to cause us to stumble here and there, but not enough to derail the bull case at this point," she added.

Chaos in Washington D.C. hit a new peak last week, when Trump fired Secretary of State Rex Tillerson. The former Exxon Mobile chief is just the latest high-profile departure from the administration, a growing list which includes communications director Hope Hicks, chief strategist Steve Bannon, and chief of staff Reince Preibus, just to name a few.

The possibility of stricter tariffs on China, and the fear of possible retaliation, also shook markets in recent days. Boeing and other companies exposed to the region like Apple, Nvidia, and Wynn Resorts declined mid-week, when reports surfaced of more tariffs to come.

"Any time you see political uncertainty rise you do tend to see an uptick in volatility," said Calvasina. "Like anything that comes out on the policy front, there's an initial sort of shock upfront and some worries are factored in, but ultimately people settle down and say the devil is in the details."

If tensions between China and the U.S. explode into a trade war, Calvasina says the utilities sector could act as one of the few places to escape the fallout. Outside of that possibility, she remains bullish on the financials sector.

"It doesn't look like a crowded sector to us," she said. "It still looks like the valuations have room to price in some further good news."

The Financials XLF exchange traded fund (ETF) rose through January, before succumbing to early February's wave of selling. Since then, the sector has ground higher through fits and starts, and now sits 4 percent below its 52-week high set on Jan. 29. It trades at 13.6 times forward earnings, below the 17 times multiple on the S&P 500.

Politics aside, it all comes back to fundamentals, and the upcoming earnings season should also give the market some fuel to push higher, said Calvasina.

"If you get better news on the underlying economy, and just the underlying demand picture, I think that could generate some animal spirits," she said. "I think frankly that's something investors really want to see."

Analysts expect first-quarter earnings to come in positive. Those surveyed by FactSet have a $36.05 target on S&P 500 quarterly earnings, representing growth of 17.5 percent.

Calvasina and RBC have a 3,000 price target on the S&P 500 for 2018, representing a roughly 9 percent increase from current levels and 12 percent rise for the full year. The median target on the street is 3,000 – UBS holds the highest target at 3,150 while Morgan Stanley is the lowest at 2,750.

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