Welcome to RBC’s Markets in Motion podcast, recorded February 17th, 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, there was very little change last week in the stats we monitor to track reporting season, aside from the continued drift lower in the bottom-up consensus 2025 S&P 500 EPS forecast to a little below $271. Second, uncertainty, policy, tariffs, and FX remained in focus in this week’s earnings calls. Third, we continued to find evidence of weakening vibes in the latest updates from the AAII investor survey, the NFIB Small Business sentiment survey update, and EPFR funds flows.
If you’d like to hear more, here’s another 5 minutes.
Starting with Takeaway #1: Mostly Stable Earnings Stats
- The percent of companies beating consensus on EPS is still tracking a bit higher than the last reporting season.
- Companies in the R1000 that are beating consensus on EPS are generally outperforming in terms of immediate price reaction, while those missing consensus on EPS are underperforming.
- We are also still seeing a slightly downward bias to the rate of upward EPS estimate revisions for the S&P 500, but less pressure on this stat for the Russell 2000.
- The biggest thing we noticed in our stats this past week was that in dollar terms, the bottom-up consensus S&P 500 EPS forecast for 2025 has come down a bit more and now stands slightly below $271, in line with our own current forecast.
- Though it closed near all-time highs on Friday, the S&P 500 has essentially been trading sideways around the 6,100 level since late January. We think investors are taking a wait-and-see approach to the busy news flow out of Washington, and the stock market’s desire to tread water seems justified from an earnings perspective for now.
Moving on to Takeaway #2: Uncertainty, Policy, Tariffs, and FX Remain in Focus on Last Week’s Earnings Calls
Our team continued to read through S&P 500 earnings call transcripts last week. Some highlights:
- The theme of optimism being eclipsed by uncertainty that we’ve been highlighting over the last few weeks persisted last week. In terms of optimism, strong demand/orders, M&A, economic resilience, and IT budgets were cited. Risks highlighted included currency, geopolitics, tariffs and trade, energy, and monetary policy. One bellwether Industrial company noted demand had been constrained by uncertainty. Meanwhile, a Tech company noted that they had seen some evidence of caution having an impact on customer behavior (though it had not yet translated into spending pulling back). As reporting season winds down, we find ourselves thinking that it may be 1Q25 reporting season before we get good color on how policy uncertainty is affecting current business conditions.
- Consumer commentary remained light. We’ve been hoping to find clues on whether recent declines in consumer survey data might be reflective of any deterioration in consumer spending (Friday’s retail sales decline/miss suggests yes). But so far we are not getting a lot of color from companies that helps to shed light on this question.
- The headwinds emanating from the strong US dollar remained a major focal point for companies in a wide array of industries. Some noted these headwinds would be stronger in the 1st
- On policy, companies highlighted the uncertainties emanating generally and on trade, M&A regulations, food regulations, and SNAP benefits in particular. On DOGE, several companies highlighted the opportunity associated with a renewed focus on government efficiency.
- Tariffs were once again in focus, and commentary highlighted the fluid and uncertain nature of the current situation and references to mitigation plans and possible supply chain readjustments. Some companies that discussed the topic last have the announced tariffs baked into guidance, while others do not, and as reporting season winds down we see further downside risk to S&P 500 EPS from tariffs.
Wrapping up with Takeaway #3: More Evidence of Weakening Vibes
- In our client meetings last week, we spent a lot of time highlighting how several categories of vibes (investor, corporate, and consumer) appear to be fading to varying degrees.
- Last week’s AAII survey provided further evidence of weakening investor vibes. Net bulls fell to -18.9%, taking the four-week average down to -1.9%. We pay more attention to the four-week average due to volatility in the weekly data points, but the drop in this indicator was striking nonetheless. Bears have outnumbered the bulls in 4 of the last 6 weeks. The last time we saw sentiment readings like this was late-September/October/early-November 2023, when the S&P 500 experienced a 10% drop as Treasury yields soared. Readings like this were also common during the regional banking crisis of early 2023 and throughout 2022.
- Data out last week also suggested that Small Business vibes have taken a bit of a hit. After surging in late 2024 around the election, Small Business optimism fell slightly in the January update survey update from NFIB. At the same time, Small Business Uncertainty, which initially fell after the election, moved up sharply (though still below last year’s high). The trends we are seeing on both of these time series also reflect what we’ve been hearing from public company C-suites in our earnings call transcript reading over the past few weeks.
- Digging deeper into investor vibes… US equity funds flows, as tracked weekly by EPFR, continued to trend lower last week but had not yet turned negative. Meanwhile, flows to US bond funds continue to surge.
- This data set also points to improving trends to Western European and German equity funds.
- The fade in US equity flows broadly can also be seen in Blend funds flows and Large Cap funds flows, particularly those to passive funds. What’s interesting to us about this data set, in light of the AAII update, is that we haven’t yet reached the point where investor anxiety is translating into outflows from US equity funds (enabling the index to tread water). But it’s reasonable to assume that this may be where we are headed (perhaps as more investment dollars shift abroad) if sentiment doesn’t stabilize soon.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.