Welcome to RBC’s Markets in Motion podcast, recorded July 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, 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.
If you’d like to hear more, here’s another five minutes.
Staring with Takeaway #1: Our First Impression of 2Q25 Reporting Season is “Fine But Not Fabulous”
It’s still early days in 2Q25 reporting season, but here’s what we’re seeing in the stats so far:
- Though it’s still quite early in 2Q25 reporting season, the percent of companies beating consensus EPS and revenue forecasts is coming in higher than last quarter.
- We haven’t been seeing strong price reactions to EPS beats, however.
- Meanwhile, the rate of upward EPS estimate revisions for the S&P 500 has held steady at just under 56%. As a reminder, this is about as good as this stat tends to get when it rebounds off a low that was made outside of a major crisis, offering a counterpoint to the idea that the bar was low for earnings coming into 2Q25 reporting season.
As has become our custom during earnings, we’ve kept busy this past week reading through earnings call transcripts of S&P 500 companies (plus a few outside that index). Reporting season has been dominated by Financials so far, with companies from other sectors sprinkled in as well, and it’s hard to know if what we learned last week will end up being representative of other companies yet to come. That being said, here’s what we’ve heard so far:
- Discussions of the macro backdrop and overall outlook by the Financials that reported tended to paint a picture of the US economy as resilient with a solid consumer, while giving a nod to ongoing uncertainty from tariffs. A few took note of slower spending while others highlighted improving sentiment, improving strategic deal activity, or strong trading volumes. Some noted they were staying vigilant or guarded. Overall, we’d describe the tone as cautiously optimistic, with a bit more caution than what we’ve seen expressed in stock market performance recently.
- We didn’t have many consumer companies reporting last week, but the comments we took note of tended to paint a picture of the consumer as resilient and stable and in good health in terms of the underlying statistics (like delinquencies) that financial institutions monitor.
- The dynamic or frequently changing nature of the tariff backdrop was, not surprisingly, a key theme in last week’s earnings calls. We appreciated one industrial company’s observation that “every one of our customers is unique and specifically in how they've adjusted to changes in trade policy, some stayed the course, some paused certain items, some pulled inventory forward” and think this is an apt description for the S&P 500 generally based on our own reading. Several companies adjusted guidance based on new tariff assumptions, and we expect more of this in the weeks ahead. We suspect many investors have been anticipating this as well.
- We spent some time studying what companies were saying about non-tariff government policy. The tax bill came up most often, with a few companies expressing optimism about the bonus depreciation provision that we’ve heard quite a bit about from investors in recent weeks. Deregulation, Medicaid, and food safety also came up.
Overall, we exited week 1 of 2Q25 reporting season feeling like everything is fine, but not fabulous, and wondering if investors generally got what they expected but were hoping for a bit more. We look forward to learning additional details about tariff management and overall company outlooks in the weeks ahead. So far, our concern that investors have been too quick to write off tariff impacts hasn’t been alleviated.
Moving and wrapping up with Takeaway #2: What Else Jumps Out on Our High Frequency Indicators
- High quality factors have been under pressure within both the Russell 1000 and Russell 2000. In several conversations with Small Cap investors this past week, PMs noted to us that low quality leadership within the Small Cap space had been a point of frustration for them of late, and our data backs up what they’ve encountered.
- Meanwhile, net bulls on the weekly AAII retail investor survey came in at 0.3% last week, taking the four-week average to 3.2%. This indicator remains slightly below average, and we continue to monitor it closely as a return to 1 standard deviation above the long-term average has tended to signal a pullback in the equity market. From a tactical perspective, we remain worried about weak seasonality in the fall months , the recent stall in the momentum trade, the tendency of mega cap growth to cede leadership on performance and dominance on earnings sentiment in reporting season, Large Cap valuations that are nearly back to past peaks on a market cap weighted, and the recent dialing down of Fed cuts. But the subdued level of bullishness on AAII could admittedly fuel the rally for a bit longer.
- US equity flows remain subdued and we’ve seen an easing of inflows to passive US equity funds for both retail and institutional. Inflows to Europe remain modest as well. Utilities, Tech, Financials, and Industrials have been the bright spots for global developed market sector flows in recent weeks. The improved flows to Financials in recent weeks may reflect somewhat elevated expectations for this sector coming into reporting season.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.