RBC slashed its S & P 500 year-end target, citing a slowing economy. However, the Wall Street firm found a bright spot in small-cap stocks, which are looking more attractive. The bank trimmed its S & P 500 2022 price target to 4,700 from 4,860 previously, according to a Monday note from Lori Calvasina, RBC’s head of U.S. equity strategy. The new forecast represents a 14% gain from Friday’s close of 4,108.54. “We are continuing to bake in a slower economic growth backdrop in 2022-2023 but not a recession,” Calvasina said. “We continue to see remarkable stability in bottom-up consensus 2022 and 2023 EPS forecasts.” The strategist said signs have emerged that the stock market may have found a bottom. The S & P 500 briefly dipped into bear market territory last month as the Federal Reserve’s aggressive tightening action stoked recession fears. “Defensive sector valuations are about as expensive as they tend to get relative to both Secular Growth sectors and Cyclical sectors right now,” Calvasina said. “The declines in the S & P 500 Consumer Discretionary and Communication Services sectors at the May 19th low in the broader market came close to the average decline in these sectors during the last four recession related drawdowns in the US equity market.” A brighter outlook for small caps? Meanwhile, RBC upgraded small caps to neutral from underweight, citing improved risk/reward as well as a better earnings picture. “Small Cap looks intriguing or better on our positioning/sentiment, valuation, and earnings work,” Calvasina said. “We are not yet ready to move back to an overweight as Small Cap still faces fundamental headwinds. … It’s also worth noting that Small Caps are starting to look a little better than Large Cap on the earnings front.” The Russell 2000 benchmark is up more than 1% this month, outperforming the S & P 500 and the Nasdaq Composite. The small-cap index is still down more than 15% on the year.