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Welcome to RBC’s Markets in Motion podcast, recorded October 21st, 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, 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.
If you’d like to hear more, here’s another five minutes.
Flip to slide 2 – quotes from Banks
Starting with Takeaways #1 on Last Week’s Earnings Calls: Solid Commentary from the Financials Was Overshadowed by Private Credit Concerns
Based on our transcript reading, on the broader macro the Financials that reported generally see a resilient economy and healthy and consistent US consumer, while acknowledging macro uncertainty and the unevenness or K-shaped nature of the underlying economy. These companies generally highlighted strong capital markets activity and pipelines, good credit quality, potential tailwinds from lower interest rates, and improving loan demand and corporate sentiment. One bank stood out for noting greater comfort among their customer base in making longer-term decisions due to increased certainty over tariffs and trade. Another stood out when they described how some of their clients had deferred capital expenditures and had been renting, but that they’d been getting requests for financing to shift from rent to own. Yet another said clients had continued engaging in capex but that “it was heavily in tech, software, transportation and equipment, while spending on new buildings remained in decline.”
Flip to slide 3 – quotes from other sectors
Meanwhile, the handful of companies that reported from Industrials, Consumer Discretionary, Health Care, and REITs struck a balanced tone, but were admittedly mixed and came across a notch cooler than the Financials as a group. Some companies painted the picture of a sluggish industrial economy with pockets of strength, while others were more clearly constructive. Macro uncertainty emanating from trade and tariffs remained in focus, along with mitigation efforts including supply chain adjustments and surgical pricing. One Industrial stood out for their acknowledgement that they had limited visibility on how trade policy would impact 4Q demand, as well as their insight into customer sentiment regarding tariffs. They noted, “It isn't so much what the prices reset to. It’s – are the prices done resetting? So customers can make decisions about what they want to do because they know the economics of what they want to do.” Meanwhile, a REIT observed that “customers have definitely become more desensitized to the short-term noise as they look at making long-term decisions.” On the consumer, a Restaurant highlighted “a slowing across the restaurant industry broadly.”
Outside of the Financials, we think it’s too early to conclude too much about the key themes of 3Q25 reporting season and are looking forward to hearing from more companies in other sectors in the weeks ahead. On the Financials, our Banks analysts, while taking the private credit concerns with diligence, have generally liked what they’ve seen from the results as well.
Flip to slide 4 – 2023 index page
Moving on to Takeaway #2: Lessons from Early 2023
The financial community is in the midst of a discovery process on the private credit concerns that emerged last week, and for now we will simply have to wait and see how things unfold. There are no perfect historical examples that we, from a US equity strategy perspective, can point to. That being said, we spent some time last week reviewing stock market performance around the regional bank crisis of early 2023 as a starting point for thinking through broader market risks. We have three key thoughts:
- First, the exercise reminded us that the S&P 500 took a hit in early 2023, but not a GFC-sized one – 7.8% in the S&P 500 from the early February high and 4.8% from the early March high. This is a harden variety pullback on our tiers of fear framework.
Flip to slide 5 – 2023 RTY page
- Second, early 2023 wasn’t a good time to get into Small Caps. The drops in Russell 2000 were much worse – more than 14% using the Russell 2000’s early-February peak and nearly 11% using its early-March peak. Additionally, it took longer for the Russell 2000 to find its footing. While the S&P 500 put in a clear bottom on March 13th, the Russell 2000 made an initial bottom on March 23rd, chopped around, then closed a tiny bit lower on May 4th. Both the S&P 500 and Russell 2000 went on to rebound through early August. The S&P 500 rose 18.7% while the Russell 2000 rose just 16%.
Flip to slide 6 – 2023 SPX page
- Third, the early-2023 playbook, Tech, Staples, and Health Care held up best initially in the S&P 500 as the index fell. In the rebound, Communication Services, Consumer Discretionary, and Tech outperformed the broader S&P 500 index, not Financials which was middle of the pack. After performing the worst of any Small Cap sector on the way down, we did see Russell 2000 Financials outperform (beating both the Russell 2000 and the S&P 500) in the rebound when the early-May low is used as the starting point.
Overall, this exercise reminded us how a recent shock to Banks flowed through to the broader indices. In terms of our equity market views today, we’ve been on guard for a pullback in the 5-10% range in the S&P 500 for other reasons. For now, we primarily see this issue as contributing to elevated investor angst, which could spark profit taking. We also think it will be difficult for leadership to shift to Small Caps while this issue remains an overhang given the heavy weightings of Financials and Banks in the Russell 2000, unless the AI theme also breaks down in a significant way.
Flip to slide 7 – SPX and RTY revisions
Wrapping up with Takeaway #3: What Else We’re Thinking About – Fading Earnings Revisions and Sentiment
- The rate of upward EPS estimate revisions for both the S&P 500 and the Russell 2000 continued to deteriorate in our latest update, with this stat slipping to 52.1% for the S&P 500 and 48.4% for the Russell 2000.
Flip to slide 8 – SPX top 10 vs. Rest of index revisions
- Deterioration has become even more evident for the top 10 market cap names in the S&P 500 – a proxy for the AI / mega cap growth trade – which have been the workhorses of the US equity market from an earnings perspective. As a reminder, the deterioration in earnings sentiment, which surged from typical non-crisis lows in late April to typical non-crisis recovery peaks in mid-August has been one thing that has kept us on guard for a tier 1 pullback in US equities this fall, along with stretched valuations, weak seasonals, choppy bitcoin trends, weaker US equity flows, recent declines in our sentiment indicator, and jittery investors in our meetings that we’ve worried would be inclined to take profits soon.
Flip to slide 9 – AAII weekly chart
- On sentiment, net bulls retreated in the weekly AAII survey of individual investors last week. The four-week average came in at 1.0% on the back of a weekly data point of -12.4%, the first negative weekly data point in 4 weeks. This sharp move lower came just one week after the weekly data point had returned to the summer’s high-water mark. The shift in individual investor sentiment on this survey now syncs up with the deterioration in tone that we’ve heard from institutional investors around the globe in recent weeks as concerns about valuations, AI, capex, rate cuts, and private credit have percolated.
Flip to slide 10 – NFIB survey
- Importantly, we’ve seen recent signs of a stall in the recovery in sentiment on other surveys as well including last week’s NFIB survey (in which small business optimism ticked lower and uncertainty rose) as well as the widely followed consumer confidence surveys.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.