What’s the big picture for the current equity market?
James Masserio: The equity market has been very constructive for a long time, with strong earnings and a favorable monetary policy environment.
That being said, we're seeing equity valuations at historical highs. So it's quite likely we can see much more upside over the next six to twelve months, but at some point valuations are going to normalize, and there's a lot of room to drop on the downside.
Vito Sperduto: Our head of U.S. equity market strategy, Lori Calvasina, sees the equity market entering a critical inflection point. In her latest report, she points out that earnings sentiment is fading, particularly beyond the largest market cap names.
We’re also seeing that the rate of upward EPS estimate revisions has slipped. Valuations remain stretched, and critically, institutional investors are beginning to look at this as a potential period of digestion.
"Valuations remain stretched, and critically, institutional investors are beginning to look at this as a potential period of digestion."
Vito Sperduto, Head of RBC Capital Markets, U.S.
James Masserio: It’s a tricky environment. People are doing well, but it’s difficult on a relative performance basis to keep up with the broader market acceleration. That’s really the challenge — clients are having to become more sophisticated in how they position portfolios and cover their bases across different future scenarios.
How’s the macro backdrop shaping equity positioning?
Sperduto: The Federal Reserve is going to the next rate cut decision without some key economic data. They're not going to have jobs, inflation and consumer spending reports, which are all going to be delayed due to the government shutdown. Our clients are already positioning for a scenario where macro visibility is low.
Masserio: We're seeing clients start to use derivatives more and more in order to express their views into the asset class. Instead of just buying a stock position outright, you can put a defined amount of risk on the table and you have a certain amount of premium, or you could buy that stock position and you can buy a put to protect on the downside.
Where is demand concentrated in the market today?
Masserio: We’ve seen the cash equity wallet on the street drop 20% over the last 10 years, while the derivatives wallet has grown 65%, and the equity finance wallet has grown 40%.
Clients are trading more derivative solutions in a variety of different products, and they have more and more demand for equity finance.
As clients become more institutionalized and grow, there's more need for sophisticated solutions – whether unilaterally or as an overlay across a more complex buy side client structure, or more financing needs in geographies, in equities or cross-asset classes.
We’re also seeing volumes rise across the board and performance remain strong across equity strategies. From a regional standpoint, Europe and Asia continue to attract increasing client interest, and that’s showing up clearly in activity levels.
"We’ve seen the cash equity wallet on the street drop 20% over the last 10 years, while the derivatives wallet has grown 65%, and the equity finance wallet has grown 40%."
James Masserio, Head of Global Equities
Sperduto: That global spread is also reshaping how clients want to engage with partners. Many hedge funds are now looking for truly global relationships that can deliver consistently across geographies.
Masserio: And that really comes down to capital — it’s the fuel that powers our business and allows us to deliver for clients. How much RWA and balance sheet we can deploy across products determines how effectively we meet client needs, and RBC has that in spades. Whether it’s derivatives or equity financing, we have the capacity to provide not just interaction but partnership. Very few firms can step in with the scale and balance-sheet strength to be a true partner rather than just a counterparty.
Which tools are evolving fastest in this environment?
Masserio: Quantitative investment strategies are investable indices developed by the sell side banks. It's really a way in which banks are able to export their operational infrastructure to clients. They offer transparency and generally low cost.
Originally, they were most used by pension funds, then they started to be adopted by asset managers, and now we're seeing hedge funds use them more.
It's a very easy way for clients to express a variety of views, often in a multi-asset perspective. It shows the level of innovation and sophistication being required by our clients.
What impact is AI having?
Masserio: We've made significant investments in AI at RBC. For example, in our equity research department, we have a multi-year plan to grow coverage from 1,700 to 2,500 stocks globally. Five years ago, the only way to do that was to hire 50% more research analysts. Through AI, our research analysts have the tools to cover more stocks and earnings reports much faster, much more efficiently.
In the next year or two, you're going to really start to see separation again, whether on the sell side, in how they're able to service clients, or on the buy side, how they're able to use that technology to differentiate themselves.
On both the bank side and the buy side, there's a huge advantage with scale. To compete without scale, you absolutely have to lead with some type of technology innovation.
What’s the playbook heading into 2026?
Sperduto: The themes of resilience and readiness for multiple outcomes have never been more important. As we look ahead, the ability to adapt and stay prepared across market scenarios will define success.
Masserio: The financial crisis was a major inflection point that rewrote the rulebook for the entire industry, and since then, scale has only become more critical. On both the bank and client side, the fixed and regulatory costs of doing business have risen dramatically. That creates a real advantage for firms with the balance sheet and infrastructure to absorb those costs and still invest in growth.
The key for everyone is pairing that scale with agility. As we look toward 2026, success will come from being big enough to matter, but nimble enough to move with clients as conditions change.
