Welcome to RBC’s Markets in Motion podcast, recorded December 22, 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.
In what will be our last podcast of 2025, we’re digging into the year-ahead outlook for US sectors, leveraging our own quant work on performance, earnings revisions, valuations, macro indicators, and flows with the US results of our 4Q25 global RBC analyst outlook survey, which was recently published.
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.
If you’d like to hear more, here’s another five minutes.
Starting with Takeaway #1: our Health Care upgrade to overweight.
- Since October, when our trip to the UK made it clear investors were getting curious about this sector, we’ve been writing about how this sector was our preferred defensive.
- Things we like about the sector today - reasonable valuations on our quant model, strong EPS which tend to benefit from a weaker dollar as well as strong revenue revisions…
- …positive flows, and a constructive performance outlook from our analysts in last week’s survey along with constructive assessments of valuation and demand. The sector’s performance relative to the S&P 500 has also been moving inversely with Tech over the past few months, meaning it’s become a clear beneficiary of rotation.
- In our recent analyst survey, the US sector’s policy risk score remained elevated and we see this as the primary risk to our call.
Moving on to Takeaway #2: our Communication Services upgrade to overweight.
- We liked this sector to start 2025 but downgraded it in July primarily due to a cautious turn in our mid-year analyst survey. One thing that jumped out to us in our December survey was that our analysts’ views have improved in our survey, and overall they now have a constructive on the performance outlook along with neutral valuation views and a strong demand assessment.
- Looking beyond the survey, we see a lot of similarities between Comm Services and Health Care. In Comm Services, we also see positive EPS and revenue revisions, valuations are attractive, and flows are starting to perk up after a brief period of deterioration.
- It’s also worth noting that both Comm Services and Health Care tend to outperform when consumer sentiment improves – that indicator has been weak but may be stabilizing around extreme lows.
- One key difference of Communication Services from Health Care is that our analysts consider the policy backdrop for Communication Services to be neutral/mixed. Another is that outperformance since late October has only been very been slight.
Wrapping up with Takeaway #3: our ongoing Financials and Materials over weights.
- Both have seen solid outperformance since late October, but still have attractive or reasonable valuations on our quant work, and constructive performance outlooks from our analysts. Improving soft data or business sentiment could help both sectors in the year ahead, as both tend to outperform when ISM manufacturing, which has been stuck in a rut, is on the rise.
- Financials also continues to have one of the most constructive policy backdrops in our analyst survey and tends to outperform when consumer sentiment rises. One knock on the sector is that flows have turned weak recently.
- Materials has been seeing negative upward EPS estimate revisions, but trends do appear to be stabilizing, and EPS revisions in this sector tend to benefit from a weaker US Dollar. After a big push higher, flows turned negative to this sector in recent months but appear to be bouncing back.
Before we sign off for 2025, we do want to leave you with a few, what we think are unique takeaways, from our 4Q25 global analyst outlook survey which we recently released. The survey summarizes responses from our analysts in the US, Europe, Canada, and Australia. A few things that jumped out:
- First, our global analysts generally have a constructive view on performance, valuation, demand, and the domestic policy backdrop heading into the new year. In other words, our analysts generally have a constructive bottom-up view heading into 2026.
- Second, the survey results highlight a bit more optimism from our analysts in the US and Canada than those in Europe and Australia going forward.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative, with any questions.