RBC's Markets in Motion

The big things you need to know:First, the investors we met with this past week, in our trip to London and Switzerland, were keen to explore other opportunities in US equities beyond Semis/Tech/AI, but had difficulty envisioning what those were.Second, we highlight continued outperformance of high price momentum in our factor work and what we're seeing in our valuation work for this part of the market, a pick up in the rate of upward EPS estimate revisions for the S&P 500 as reporting season slows down, and the signal we're currently getting from S&P 500 and Russell 2000 forward P/Es – things are moving up but aren't universally back to their 2025 and early 2026 highs.

In this special cross over edition (originally recorded for the RBC Capital Markets Macro Minutes podcast), Lori joins Blake Gwinn, Head of RBC Capital Markets US Rates Strategy in a conversation on US equities, US rates, and the Fed.What we discuss:Equity markets keep hitting all-time highs. Rates markets are telling a more cautious story. So which one has it right? In this episode, we examine the complacency narrative through both an equity and rates lens, unpacking whether risk assets are fully pricing the range of Iran conflict outcomes or looking past risks that haven't fully materialized yet. We also dig into what a Warsh-led Fed means for forward guidance, dissent, and market volatility, and what the shifting policy backdrop means for how investors position across equities and rates.

The big things you need to know:First, we have lifted our 12-month-forward S&P 500 price target to 7,900, which represents a 7.7% gain from the May 7th close. In adjusting our forecast, we are focusing on our valuation/EPS model, which does the best job of baking in a two-speed economy and earnings backdrop.Second, on bigger-picture positioning, we continue to prefer Growth over Value, US over non-US, and like Small Caps (but not as much as Large Cap Growth).Our sector views are mostly unchanged, but we have lowered Health Care to market weight from overweight. Third, we run through the strong stats from 1Q26 reporting season.

The big things you need to know:First, US equity market valuations are on the rise, but don't look topped out yet. We remain constructive on the US equity market in the year ahead, recognizing that the path may not be linear.Second, last week's earnings reports continued to point to resilient outlooks with a dose of caution fueled by a strong start to the year, highlighted challenges to consumer resiliency in restaurants and travel but otherwise a reiteration of the cautious but stable theme, and alluded to a complex web of buffers in place for companies regarding the impact of the war in Iran for a period of time.Third, things that jump out in our other updates include a sharp spike in company references to geopolitics in April, a stall in investor sentiment last week, and a pick-up in betting market expectations for a split Congress in the midterms.

The big things you need to know:First, the three things that stuck out to us in our review of earnings calls last week included outlooks that emphasized resiliency but contained a dose of caution, the conversation on Iran war impacts (present and future) getting underway, and descriptions of cautious but stable consumers.Second, with US equities breaking out to a new 2026 high relative to non-US equities, we note that valuations suggest there's room for this trade to run and that weak earnings revisions breadth is not a problem unique to the US.Third, funds flows are shifting back to Financials and Growth, which we think makes sense from a valuation and earnings growth perspective.

The big things you need to know:First, our analysts were generally constructive aside from the war.Second, our survey results reiterate the idea that the US is seen as a safety trade due to greater war resiliency, and that Europe does not necessarily present as a better alternative despite the potential for the US to lag if/when war fog clears.Third, we review the most interesting sector tidbits from the survey.

The big things you need to know:First, despite the strong rebound in the US equity market, investor sentiment remained subdued last week. This signals to us that there is room for US equities to run and climb a wall of worry.Second, 1Q26 reporting season got off to a strong start last week, evidenced by a sharp pickup in the percent of companies beating consensus EPS forecasts and reassuring commentary from companies.Third, other things that jump out in our latest updates include strong outperformance by Large Cap Growth and growth-oriented sectors in April, the low-quality burst of leadership within Small Cap, and strengthening inflows to the US amid outflows from Europe

The big things you need to know:First, our 12-month S&P 500 price target remains 7,750, and we assume the index has put in a fragile, foggy bottom.Second, we run through our thoughts on what we're hoping to learn more about in the upcoming reporting season.Third, other things that jump out include how 2026 EPS growth forecasts for most sectors have been frozen since the start of the war, and the decline in consumer expectations for stock market performance over the next 12 months.

The big things you need to know:First, the tactical indicators we've been tracking to gauge when equity investors' fears may have gone too far continue to show signs of significant deterioration but are not yet pointing to extreme fear suggesting more downside in stocks remains possible in the near term.Second, other things that jump out include new stress tests on our valuation/EPS model, the latest C-suite tone, the signals from our US GDP model for the S&P 500 if consensus forecasts start to erode, and evidence of derisking in equities in the latest funds flows data.

The big things you need to know:First, we review our key takeaways from our review of March company commentary on the Middle East conflict on EPS calls and in conference presentations. What we read adds to our understanding of why the US equity market has been fairly resilient since the Iran strikes, and also leads us to believe that it may simply take more time for the equity community to fully understand the impacts from an extended conflict.Second, other things that jump out this week include much better EPS estimate revisions trends in the top-10 market cap names in the S&P 500 than the rest of the index (a point in favor of mega cap Growth stocks continuing to outperform), the sharp drop in investor sentiment on our AAII model (a bullish data point for the broader market) and the return of the Russell 2000 FY2 P/E to its long-term average (important progress but not a return to “hold your nose and buy” territory).

The big things you need to know:First, in tandem with the 5% decline in the S&P 500, investor and consumer sentiment have slipped in recent updates as investors have digested the possibility of a longer conflict in Iran and consumers have started to notice higher gas prices.Second, we review our macro takeaways from RBC's Financial Institutions conference, where we detected echoes of the lingering confidence and emerging concerns that are seen in the surveys we discuss.

This week, we are excited to bring you a special edition of the podcast, a recording of a panel done by Lori Calvasina (Head of US Equity Strategy), Helima Croft (Head of Global Commodity & MENA Research), and Frances Donald (Chief Economist, Royal Bank of Canada) on March 10th, 2026, at the RBC Financials conference in NYC.The team discussed recent events in the Middle East and the implications for the US economy and stock market, and was moderated by Brian Sullivan of CNBC.

The big things you need to know:First, we review the results of a survey we conducted of RBC's equity analysts on the conflict in Iran, which helps explain the resilience we've seen in the S&P 500.Second, the valuation and sentiment barometers we're tracking point to room for further downside in the S&P 500 in the near-term in absolute terms, while our work on US valuations vs. other global developed markets highlights why the US equity market has been embraced as a safe haven, helping outperformance versus global peers to re-ignite.

The big things you need to know:We run through five things we're thinking about regarding recent developments in the Middle East from a stock market perspective.Then, we wrap up with a few things we're watching in terms of general stats to help us know when the recent risk off mood in markets may have played out.

The big things you need to know:First, the stock market is still experiencing a growth scare, in our view, where it is attempting to stabilize. We see more downside if recession is priced in.Second, we review how the process of resetting EPS expectations has begun, and run though key themes from the early reporters and companies that have presented at conferences since the Rose Garden. Our overarching takeaway from our reading is that recession is not yet a foregone conclusion but also that US equities are not out of the woods.Third, we run through our latest thoughts on the Growth trade, which has been outperforming again, and note that it is not a clear-cut call.

The big things you need to know: First, we review our stance on Small Caps. We had a little more love for them coming into Valentine's Day weekend due to better fundamentals, but still see challenges that raise the bar for further outperformance (less appealing positioning and valuations, plus continued linkage to evolving views on the Fed). Second, other things that jump out include more evidence of a tough reporting season, the slide in sentiment on the AAII survey which is not signaling oversold conditions yet, and thoughts on why we're not intrigued with the Tech sector yet from a generalist perspective. Programming note: The podcast will be on break next week and resume later this month.

The big things you need to know:First, we run through our thoughts on last week's choppy price action in the S&P 500 and reiterate our 7,750 12-month-forward S&P 500 price target.Second, we update the stats we're tracking for 4Q25 reporting season, which generally bounced back in our latest update but remain weaker than what we've seen in past reporting seasons.

The big things you need to know:First, reporting season stats have come in “slightly squishy” in our view, suggesting to us that the choppy price action in the S&P 500 of late has been about more than geopolitical concerns.Second, what we read in earnings call transcripts this past week continues to suggest that the macro backdrop is mixed, though we are not seeing any indications of major problems.Third, the thing that jumped out the most to us in our other updates was the slight downtick in optimism on the stock market outlook in the latest Conference Board consumer confidence survey.

The big things you need to know:First, the various earnings stats we track point to a sleepy start to reporting season, suggesting to us that geopolitics hasn't been the only thing contributing to the US equity market's recent gyrations. These stats also highlight how the mega cap growth trade has seen its dominance on the earnings front erode in some ways, helping fuel the rotation trade to Value and Small Caps.Second, our review of this past week's earnings call commentary suggests that views of the macro have been mixed, with geopolitical concerns and consumer pressures noted, but tariffs described as manageable.Third, things that jump out from our other updates include the rise in the Russell 2000's P/Es which are approaching 2024 highs

The big things you need to know:First, our thoughts on earnings heading into 4Q25 reporting season – questions we think need answering and stats we're watching.Second, other updates include our thoughts on implications in house views on the Fed for our own US equity market outlook, why we think last week's economic data releases support the strong start to the year in US equities, why we think Small Cap performance is at an important crossroads vs. Large Cap, and how recent trends in funds flows capture the complex crosscurrents in place for US equities today.

The big things you need to know: First, after updating our models for end of year, we are reiterating our 7,750 12-month S&P 500 price target, noting that the signal from our sentiment model deteriorated since our last update in early December while the signal from our GDP model strengthened. Second, a few things that jumped out in our other updates included the recent divergence in the size and style trades, the S&P 500's inability to recapture last summer's peak on the rate of upward EPS estimate revisions, and the latest results of the Duke CFO survey where optimism picked up on one's own company and the broader economy, accompanied by an optimistic view on the productivity benefits coming from AI.

The big things you need to know:First, we are upgrading S&P 500 Health Care to overweight from market weight.Second, we are upgrading S&P 500 Communication Services to overweight from market weight.Third, our other S&P 500 recommendations are unchanged. We remain overweight Financials and Materials, underweight Consumer Discretionary, and market weight all other sectors. Among our market weights, we have a preference for sectors that look attractively valued on our quant analysis (Consumer Staples, Energy, REITs) over those that look expensive (Utilities, Tech, and Industrials) which have been the early beneficiaries of the AI trade.We also close with a quick thought on the biggest macro takeaways from our 4Q25 global analyst outlook survey.

The big things you need to know:First, several things that US equity markets have been linked to (breadth, bitcoin, private market fears, Fed cut expectations, consumer sentiment) have gotten better in recent updates.Second, a few signals from our year-ahead outlook analysis have shifted over the past week.Third, there have been a few interesting twists and turns in positioning since Thanksgiving week in terms of sectors and factors.

The big things you need to know:First, our 12-month-forward price target for the S&P 500 is 7,750, approximately the median and average of five different models that we use, which focus on sentiment, valuation, the appeal of stocks relative to bonds, the economic outlook, and monetary policy.Second, some of the key headwinds / downside risks and tailwinds / upside risks we're monitoring include shifts in expectations for the economic backdrop, renewed interest in geographical diversification, and the midterm elections.Third, tactically (near term) we are leaning into the rotation in leadership within the US equity market from Growth to Value and the mega cap Growth trade to the rest of the market, but caution that a shift in earnings dynamics is still needed for this transition to have significant duration.Fourth, we have gotten more comfortable adding to Small Caps but see risk that recent outperformance ends up being short-lived once again unless the underlying economic backdrop / overall economic conditions heat up significantly.

The big things you need to know:First, with the S&P 500 having finally entered what we consider to be tier 1 / garden-variety-pullback territory on Thursday, we review what we're watching to help us gauge if / when the pullback has run its course.Second, with old leadership within US equities under pressure, we review which trades are working best right now (or might be starting to work) among the data sets we track regularly (Small Caps – at least on Friday and Value, sectors with valuation appeal, and safer factors).Third, we review what we learned from the consumer companies that reported over the past week (companies highlight a mixed macro backdrop, ongoing and intense consumer challenges, ample inventories, their ability to manage through tariffs, and more specific AI use case examples).

The big things you need to know:First, earnings sentiment staged a partial comeback last week as the rate of upward EPS estimate revisions for the S&P 500 moved up again slightly vs. the prior week but remained below its August high.Second, we run through the latest big picture takeaways from S&P 500 earnings calls.Third, other things on our mind include our work the valuation profile of high earnings quality stocks within Small Cap and how we're thinking about the government shutdown.

The big things you need to know:First, the percent of S&P 500 companies beating consensus EPS forecasts remains well above 2Q25 levels despite slipping a little last week. Meanwhile, the rate of upward EPS estimate revisions improved slightly but remains well below the high of the last reporting season.Second, macro commentary in last week's S&P 500 earnings calls remained mixed and varied by sector, with the strongest tone coming out of Tech and Health Care and the weakest tone coming from Consumer.Third, we noticed more tricks than treats as we ran through our latest updates over Halloween weekend, and run through some of the charts that are spooking us the most on the broader market right now.

The big things you need to know:First, 3Q25 reporting season has gotten off to a strong start on beat rates for the major indices, but we are continuing to see deterioration in the rate of upward EPS estimate revisions for the S&P 500, the Russell 2000, the biggest market cap names in those indices, and the rest of both indices when their top weights are excluded – something we continue to see as a challenge for performance if it persists.Second, we run through the main macro takeaways we found in our review of last week's S&P 500 earnings calls. The tone on the overall macro, consumer and tariffs came across as mixed, with a number of companies expressing optimism about improvements / stabilization underway or potentially coming into view.Third, other things that jump out in our updates this week include a new study we've published on the relationship between ROEs and P/Es in the major Small, Mid and Large Cap indices.

The big things you need to know: First, solid commentary from the S&P 500 Financials that reported last week helped get 3Q25 reporting season off to a good start, though it was overshadowed by private credit concerns. Second, we reviewed stock market performance in early 2023 around the regional banking crisis as a starting point for thinking about risks to the broader US equity market. Third, other things that jump out include further deterioration in earnings revisions trends for the major indices and stalling sentiment.

The big things you need to know:First, earnings sentiment has been fading for the broader US equity market and is at a critical juncture for the biggest market cap names and Tech sector within the S&P 500.Second, macro signals were mixed from the S&P 500 companies that reported over the past few weeks.Third, our thoughts on Friday's weakness in the S&P 500.

The big things you need to know:First, across all industries and regions, our analysts are constructive on performance over the next 6-12 months.Second, at the global sector level our analysts have the most positive performance outlooks for REITs, Materials and Financials.Third, our analysts were slightly less optimistic on forward performance for Europe/UK than other regions.Fourth, our analysts generally had mixed views of the policy backdrop.Fifth, when we look at some of our macro indicators, Canada has been the bright spot in terms of performance YTD and over the past month.

The big things you need to know:First, many of the US equity investors we met with last week were frustrated and wary.Second, other things that jump out in our work include a speech by the USTR to the financial community in NYC last week, the recent fade in the broadening trade and Small Cap leadership, the continued easing in earnings sentiment, and expectations around the shutdown's duration in betting markets.

The big things you need to know:First, we review what clients were most interested in talking about on our trip to the UK last week, which included differences between US and UK investor sentiment, valuations, geographical funds flows, and sectors.Second, we recap the macro tidbits we picked up from last week's S&P 500 earnings calls (where the auto-related names had a negative tone), our takeaways from the Duke CFO survey that came out last week (optimism about their own companies moved up slightly), and what we learned from our review of how stocks have traded around government shutdowns in the past.

The big things you need to know: • First, weakness in Homebuilders doesn't bode well for the recent outperformance of Small Caps. • Second, we've continued to see some slippage in earnings sentiment (the rate of upward EPS estimate revisions) for the S&P 500, which has been driven by companies outside of the biggest market cap names. • Third, bulls picked up sharply in the AAII survey last week. • Fourth, our work on US equity market performance in the 12-month period following non-recession-related Fed cuts and reset cuts highlights upside risk to our 2H26 S&P 500 target price of 7,100. • Fifth, capex growth improved in 2Q25. • Sixth, US equity funds flows bounced back last week, driven by US-domiciled funds.

The big thing you need to know:The big thing you need to know: We are introducing preliminary forecasts for the S&P 500 for 2026 of 7,100 (a 2H26 price target) and $297 (full-year 2026 S&P 500 EPS). We think they should be viewed as a very early indication of how our models are tracking at the moment.

RBC's Markets in Motion is the weekly podcast from Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, highlighting her latest views on the US equity market.The big things you need to know:First, we see Friday's weaker-than-expected jobs report as having added some additional uncertainty to the US equity market outlook at a time when we've been on guard for choppiness for other reasons.Second, we reiterate our overweight stance on the S&P 500 Materials sector.Third, other things that jump out to us include the weakness in bitcoin and the deterioration in US equity flows and retail flows specifically, which add to our near-term concerns.

The big things you need to know: First, 2Q earnings season wrapped up with downward pressure on 2026 sector EPS forecasts & Small Cap operating margin forecasts. Second, following Friday's news that the US Court of Appeals for the Federal Circuit had ruled against the reciprocal tariffs, we think corporate uncertainty around tariffs will remain elevated.

The big things you need to know:First, a better longer-term EPS outlook and more resilient operating margin forecasts help explain the recent outperformance of mega cap growth stocks and growth-oriented sectorsSecond, Small Caps recently saw a brief/mild outperformance pop on mounting Fed cut optimism, but we remain neutral on Small Caps given elevated valuations and below-average consensus GDP expectations.Third, mixed vibes to end the summer make us question whether the sentiment recovery that has powered US stocks may soon hit a speed bump.

The big thing you need to know: First, with reporting season starting to wind down, Health Care and Tech stand out positively on a few of our earnings-related sector stats. Second, we recap what we read in last week's S&P 500 earnings calls. The overall tone improved vs. the prior week, but we still detected plenty of uncertainty as reporting season winds down particularly on demand, the consumer, mitigation levers yet to be pulled, and capex. Third, we run through a few other things that jump out on our high frequency indicators including the surge in Growth stocks, waning investor sentiment, and the sharp US equity funds outflows seen in the latest EPFR data.

The big thing you need to know:Our overall impression from 2Q25 reporting season is that companies are managing through tariffs fairly well so far, but it's still too early to assume tariffs won't generate inflation pressures. We run through four takeaways on what we learned in 2Q25 reporting season last week regarding the overall tone, the state of demand, the consumer, and the timing of tariff impacts.

The big things you need to know:First, we run through our first impressions from week 1 of 2Q25 reporting season in terms of both the stats and company commentary. Out of the gate, our impression is that it's been fine but not fabulous.Second, we review what else jumps out to us on our high frequency indicators which includes the underperformance of quality factors, average levels of bullishness on the weekly AAII retail investor survey, and subdued flows to US equity funds.

The big things you need to know: First, we are lifting our year-end 2025 S&P 500 price target to 6,250, essentially taking our price target back to where it was in mid-March. Second, there is no change to our 2025 S&P 500 EPS forecast of $258, which is slightly below consensus. We also review what we've learned from the early reporters, which makes us think it's too early to stop worrying about tariff impacts. Third, we're adding the momentum trade and earnings sentiment for mega cap growth to the list of things worrying us about the stock market near-term.

The big things you need to know:First, we review the bull thesis that we heard in client meetings last week, and our thoughts on where it could go wrong.Second, we review how the rally in equities has been looking a bit overdone on our valuation and EPS modeling, and how we're also starting to run out of room on one of our sentiment studies.Third, conditions are rather mixed for US equities at the moment. We walk through things that look good, and things that look not so good. In the latter camp, one thing that stands out as particularly important to us is the failure of c-suite sentiment in widely followed surveys to inflect positively, as has been the case with consumer, small business, and investor sentiment surveys.

Four big things you need to know: First, globally our analysts are constructive on performance over the next 6-12 months. Second, driven in part by our survey results, we are making six changes to our US sector calls – we dig in a little deeper to the upgrades of Materials, Consumer Staples, and REITs here. Third, while we don't make recommendations on non-US sectors, we do highlight how Financials is a favorite across the globe among our analysts. Fourth, improving 2026 consensus GDP forecasts are a positive outlier for the US compared to our other coverage regions, which we think has been helping boost US performance.

For all my Buy-side friends - If you find our research and podcast helpful, we'd appreciate your vote in Portfolio Strategy in this year's Extel/II survey (www.extelinsights.com/voting). Voting is open until Friday, June 27th. Listen to this episode for a recap of our biggest call of the year...Or watch my video message - https://players.brightcove.net/6021289101001/VyvCc9BZx_default/index.html?videoId=6374546435112

The big things you need to know:First, solid earnings stats are in place as US equity investors wait for the onset of 2Q25 reporting season.Second, the latest Business Roundtable survey highlighted weaker corporate vibes relative to March, echoing the tone in last week's earnings call transcripts to some degree for Russell 3000 companies, where cost containment discussions jumped out to us.Third, we recap our views on how we're thinking about the recent developments in the Middle East from a US equity market perspective.

The big things you need to know:First, the conflict in the Middle East comes at a complicated time for the US equity market, as our sentiment and seasonality work has been suggesting stock prices could keep moving up, while our valuation/earnings and GDP analysis has been suggesting that the stock market has gotten ahead of itself. We highlight the three potential challenges we see for the US equity market from this conflict, which we are monitoring closely.Second, we revisit our four tiers of fear framework, which helps us map out potential downside in US equities from the conflict, particularly if conditions escalate and broaden out.Third, Energy and Materials seem most likely to outperform if the conflict results in a sustained oil price spike, while Consumer Discretionary and Communication Services seem most likely to underperform. We're also keeping an eye on Utilities and REITs as potential, tactical outperformers.

The big things you need to know:First, consensus expectations for 2026 are inching up for S&P 500 EPS in a broad based way, a positive data point for the stock market but a slight one.Second, net bulls on the AAII survey have moved up sharply, and formally entered a less robust forward return environment last week.Third, the seasonal playbook reminds us that in recent years June and July have tended to be strong for the S&P 500 but that the transition into fall has been tricky with declines often seen in the August – October time frame.

RBC's Markets in Motion is the weekly podcast from Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, highlighting her latest views on the US equity market. In this special edition, Lori is joined by her colleagues Amy Wu Silverman (RBC Derivatives Strategist) and Ben Fisher (RBC Midwest Sales, who works closely with the firm's macro strategists). They discuss the current, messy state of the US equity market and the pickles investors are finding themselves in. Ben moderates the discussion, which was recorded live at the RBC EPIC Conference in NYC on June 4th, 2025.The four big topics covered:First, where Lori and Amy see US equity markets and volatility headed. Lori describes herself as neutral and reviews her new YE 2025 S&P 500 target of 5,730, which is driven by her valuation and earnings work and a macro backdrop that looks a bit better than it did in early April, but not as strong as it was in January. Amy highlights how both the right and left tails have gotten fatter recently, and runs through what she sees as the potential catalysts for a pick-up in volatility.Second, Amy and Lori's latest thoughts on investor sentiment and positioning. Amy highlights differences in recent behavior from retail investors (who were buying the dip) and institutional investors (who were more cautious and engaged in derisking and degrossing). She points out that hedging on the institutional side has not been short term in nature, due to uncertainty about when the hard data will deteriorate. Meanwhile, Lori notes that many of the investors she speaks with are in a holding pattern, waiting to see what happens next, and walks through a number of key questions that investors will be looking for the answers to in the next reporting season. She also highlights the messiness of recent investor sentiment and positioning data, which fell but never completely collapsed for institutional investors and has been rebounding rapidly after collapsing for retail investors.Third, Lori and Amy's thoughts on some of the biggest positioning trades in equities of late. Lori highlights why she sees the tug of war between mega cap Growth and Value continuing, the intersection of the mega cap Growth trade and US exceptionalism, and how tariffs opened a door to curiosity about regions outside the US that will be difficult to close. Meanwhile, Amy highlights increased activity regarding trades on China and Emerging Markets and how she believes that her clients are the most Euro curious she's seen in quite some time.Fourth, thoughts regarding the impact of the bond market on US equities. Lori runs through why 5% on 10-year yields would be a stumbling block for US equity market performance, while Amy highlights the potential for the inverse correlation between bonds and equities to break down as a key risk to monitor.

The big things you need to know:First, we are modestly revising our YE 2025 S&P 500 price target, taking it up 3% to 5,730 from 5,550. Our valuation and earnings models drive this number.Second, we view sentiment as the main risk to our call. Even though it's been melting up in recent weeks, our sentiment model (based on AAII net bulls) is still the most constructive one in our price target toolkit, and our analysis of S&P 500 moves off the lows of the major post GFC drawdowns indicates that the index could have more room to run through year-end 2025.Third, we review the case for and against Small Caps, which were in focus in our meetings last week. We remain neutral as Small Caps have been derisked to a greater degree than Large Caps, making an underweight unwise, but the conditions for outperformance seem elusive.

The big things you need to know:First, the S&P 500 EPS backdrop has stabilized, but we still anticipate further downward revisions for 2025 S&P 500 EPS. After a preliminary model refresh, we are maintaining our 2025 S&P 500 EPS forecast of $258, which is below the bottom-up consensus of $265.Second, we've updated our S&P 500 valuation model to reflect updated RBC house views on key macro variables like interest rates and inflation. It suggests that last week's gap up in the stock market was largely deserved, but that upside from here may be limited without another major step-up improvement in broader macro expectations.Third, we run through our thoughts on the Moody's US debt downgrade from a US equity market perspective.