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The backdrop for equities has eroded, though it has yet to flip negative, RBC Head of U.S. Equity Strategy Lori Calvasina said in a note.

She says that while “the bull is limping,” her view on stocks remains constructive, just “a bit less so” as the year-end S&P 500 target gets slashed to 2,890 from 3,000 -- her new forecast implies 11 percent upside to Monday’s close. She also cut the index’s EPS estimate to $151 from $155 due to a reduction in EBIT margin assumptions.

As for sector positioning, Calvasina has downgraded technology to an underweight view given a continued preference for value over growth. She also points to fading leadership on earnings and fundamentals, lingering concerns over sector crowding and the recent breakdown in ETF flows.

On the flip side, she upgrades utilities to market weight, calling it the best choice for defensive exposure. She adds that health care is on upgrade watch and consumer discretionary is on downgrade watch, both due to valuations.

Calvasina maintains overweight ratings on financials, energy and industrials, and underweight the REITs and consumer staples sectors.

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