Conversations in the US | Transcript

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Welcome to RBC’s Markets in Motion podcast, recorded October 6, 2025. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.

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.

If you’d like to hear more, here’s another five minutes.

Starting with Takeaway #1: The US Investors We Spoke with Last Week Sounded Frustrated and Wary

In last week’s podcast we observed that the investors we’d met with in London in late September had sounded cautious and concerned on the US equity market, in contrast to the more constructive (admittedly, sometimes begrudging) tone we’d heard in our mid-September NYC meetings. Last week after returning from the UK, we spent most of our working hours meeting with US equity investors in several different cities in the Midwest and East Coast. We confess that we were surprised that the tone of these early-October US conversations was closer to that of our late-September London meetings than our mid-September NYC meetings.

Frustrated is a good way to describe the tone we heard in some of last week’s conversations, particularly those with Small Cap core and growth-focused investors. Difficulties outperforming their benchmarks due to the low-quality leadership and strong move in momentum that’s been underway in the Small Cap universe was the biggest source of this frustration, with some Small Cap PMs also noting that the concentration problem Large Cap Growth managers have been dealing with for so long had made its way into Small Cap.

Looking beyond our Small Cap meetings, wary is another good word to describe the tone we heard from US equity investors last week. Like our UK clients, some of our US clients expressed apprehension about the stretched nature of current valuations and jitters over the status of the AI/mega cap growth trade. In some of our US meetings, investors seemed more concerned about the economic growth backdrop and demand than inflation impacts from tariffs.

• Several surprised us by expressing muted views on the future trajectory of capex (specifically non-AI- related capex), which we think may have been influenced by the continued weakness that was seen in the ISM manufacturing survey, particularly the downtick in new orders since that indicator has tended to be a good leading indicator of actual capex spend.

• Some of our US clients also mused whether the typical tailwinds stocks experience from rate cuts had already been pulled forward into stock market pricing.

The subdued tone we’ve heard in London and the US in late September and early October, along with the more constructive tone from mid-September, is all part of the messy mosaic of investor sentiment that’s in place. We see this in our data sets as well. Net bulls in the weekly AAII survey (a gauge of retail investor sentiment) moved up again last week, into slightly positive territory and nearly back to average on the weekly data point, but still slightly net negative on the four-week average.

• Meanwhile, bitcoin (viewed by some as a way to gauge sentiment among retail day traders) broke out of its slump and re-approached its August high-water mark.

• Elsewhere, new data from the Conference Board Consumer Confidence survey out last week suggests that despite the stall in the recovery we’ve seen in consumer confidence generally, optimism on the stock market remains quite high and in line with most past peaks aside from the most recent one. Unfortunately, we do not have a fresh read this week on our favorite quantitative way to gauge institutional investor sentiment – the weekly CFTC data on US equity futures positioning, leaving us more dependent on what we’re hearing in meetings to gauge where institutions are.

Moving on to Takeaway #2: What Else We’re Watching

• First, tariff talk. Last week we also attended a speech by US Trade Representative Jamieson Greer at the Economic Club of New York. As for what jumped out from a stock market perspective, Ambassador Greer reiterated the Administration’s larger policy goals from tariffs, focused on China then USMCA, commented on some interesting nuances on the negotiations with China, emphasized early August rather than April 2^nd as the starting point for the new tariff regime, noted that trade negotiations would not be impacted by the shutdown, and reminded the financial community that the Administration has other avenues to pursue tariffs if the IEEPA tariffs are struck down by the Supreme Court. Overall, the speech largely reinforced our belief that tariffs will be part of the stock market backdrop for quite some time.

• Second, Small Cap sizzle, or fizzle? Despite the many headlines declaring otherwise, old leadership has returned in recent trading. The top 10 market cap names in the S&P 500 hit a new performance high relative to the rest of the index, while Growth has also hit a new high relative to Value within Large Cap. Meanwhile, Small Caps are lagging both the S&P 500 and the Nasdaq again. We’ve been through our reasons why many, many times in recent weeks so won’t regurgitate them here. But for the record, we remain skeptical of the idea that Small Caps have started a new, longer-term leadership cycle.

• Third, easy does it on earnings sentiment. The rate of upward EPS estimate revisions for the S&P 500 continued to slip in our latest update. The slippage continues to be driven by the index ex the top 10 names, but in last week’s update we did note a slight tick lower for the top 10 names as well. With AI jitters running high (at least on some days), this chart begs the question of whether we’ve seen peak earnings optimism for this theme, and whether the rest of the market will be seeing enough fundamental strength to help prop up the broader indices should the mega cap growth / AI trade take a breather.

• Finally, shutdown surveillance. As of Friday, betting markets continued to generally anticipate that the government shutdown would last less than 29 days, but expectations that it could go on longer had risen. As discussed in our previous Pulse, stock market performance during government shutdowns has tended to be mixed and mild, with the greatest tendency to decline back in the 1970s when shutdowns tended to be longer and usually occurred in the middle of more significant and extended stock market pullbacks. We’ve been worried about a period of digestion in stocks between now and year-end, but have not been overly concerned about a shutdown being the catalyst given that history, which speaks to the tendency of investors to look through these kinds of short-term disruptions.

• Given what we’re seeing in betting markets, we have done some additional thinking about the duration of past shutdowns and found that the only one that went more than 30 days was in 2018-2019. That one began near the end of the sharp drop in the stock market that occurred during the final few months of 2018. Given that stocks have rallied strongly into the current shutdown, it’s fair to say that if we end up getting a historically long one, it will lack true historical precedent, and we think the stock market will take its cues from any longer-term impact to the economy. Note that once again, last week we got no questions about this event in our investor meetings. It only came up if we mentioned it.

That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.