Welcome to RBC’s Markets in Motion podcast, recorded August 9th, 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 thing you need to know:
- First, with reporting season starting to wind down, Health Care and Tech stand out positively on a few of our earnings-related sector stats. Second, we recap what we read in last week’s S&P 500 earnings calls. The overall tone improved vs. the prior week, but we still detected plenty of uncertainty. Third, we run through a few other things that jump out on our high frequency indicators including the surge in Growth stocks, waning investor sentiment, and the sharp US equity funds outflows seen in the latest EPFR data.
If you’d like to hear more, here’s another five minutes.
Starting with Takeaway #1: Health Care and Tech Stand Out Positively On A Few of Our Earnings-Related Sector Stats
- Over the past few weeks, we’ve been highlighting how beat rates have been high but that the companies beating consensus EPS forecasts haven’t been outperforming the broader market in terms of their immediate price reaction.
- This week we’ve dug into those stats a bit deeper, looking at sector trends. Within the Russell 1000 there have been three sectors defying this trend which are seeing beats outperform – these are Energy, Health Care, and Utilities.
- Like the broader market, most sectors in the S&P 500 have been seeing positive revisions on consensus forecasts for both EPS and revenues. However, the Technology sector has been the strongest on both stats, followed by Communication Services and Financials.
- Interestingly, Tech is also the only S&P 500 sector where bottom-up consensus operating margin forecasts have moved up recently for both 2Q and 3Q. The overall S&P 500 has seen margin forecasts slip for both time periods recently.
In addition to standing out in a positive way on some of our stats, the other thing these two sectors have in common is that their tone has generally been better than that of other sectors throughout reporting season. We’ve been market weight both sectors. Revisions are stronger in Tech, but valuations are more appealing in Health Care.
Moving to Takeaway #2: There A Better Overall Tone Than The Prior Week, But Still Plenty of Uncertainty
We continued reading through S&P 500 earnings call transcripts last week.
- Similar to the prior week, descriptions of demand varied, with some companies pointing to steady demand trends and no evidence of pull-forward, others highlighting their belief that some pull-forward has occurred, and others referencing delays due to uncertainty or an elongation of the selling cycle. As reporting season winds down, it’s still a bit unclear to us where the balance of risk lies on this issue in the next few months. Several companies that dug into the cadence of their demand in recent months highlighted July recovery, adding to our sense that the overall tone was better last week.
- The consumer-oriented companies that reported last week continued to paint a picture of a US consumer that is resilient yet cautious, value-seeking, trading down, and selective, with pressure at the lower end. Overall, the tone was better than the prior week, however, which we think may be due to the fact that the consumer-oriented companies we heard from last week were more geared towards experiences than goods which had been more prevalent the prior week.
- Tariffs remained one of the hottest topics, with companies continuing to describe the situation as complicated, challenging, fluid, dynamic, and contributing to uncertainty. Recurring ideas included bigger impacts in the 2nd half, the headwind tariffs pose to margins, the various forms of mitigation strategies companies are deploying, and adjustments to guidance due to lowered tariff impacts vs. those baked in earlier in the year. A few companies also alluded to hedges that were contributing to the mitigation.
- Commentary from last week’s companies continued to point to vigilance on keeping costs down, with a few referring to labor costs in particular. One Industrial company discussed how they need more certainty on the implications of the recent tariff announcements before they know what levers to pull on managing the impacts going forward, and then noted that so far they have been taking “no regrets” actions which have included things that can be “quickly, easily reversed.”
We characterized the first few weeks of reporting season as “fine but not fabulous.” Two weeks ago, when more than 150 S&P 500 companies reported, things got “messy”. Reporting season is winding down on a better note, and still looks fine overall on the stats, but the mess in the narrative that emerged midway through remains. We think investors and corporates will be confronted with major questions after Labor Day about what the state of demand will look like in the back half (particularly for consumers), how much pre-tariff inventory remains, what levers tariff impacted companies may decide to pull now that they have a bit more certainty on tariffs, and whether companies will actually start to ramp up capex in response to the tax bill.
Wrapping up with Takeaway #3: What Else Jumps Out
- Growth has hit a new high relative to Value within Large Cap. Importantly, the rate of upward EPS estimate revisions has stayed stronger for Growth than Value, and for the top 10 market cap names than the rest of the S&P 500, highlighting the general idea that earnings sentiment has been better for Growth and mega caps. This is important because earnings season has been a time in recent years when earnings sentiment has often faded for the Growth and mega cap trades relative to Value and the rest of the market, and this has often prompted a temporary shift in market leadership away from the biggest cap growth names. 2Q25 has been different, however, and the old leadership has remained intact.
- Net bulls on the weekly AAII survey of individual investors have been hovering around average recently, but fell sharply in last week’s update to -8.3%. It is unusual for this indicator to fall after only moving up to average levels (usually the declines begin from much loftier levels). This is a time series that can be volatile week to week, and we’ll be keeping a close eye on it in the weeks ahead to see if the deterioration is sustained or represents a blip in the data. For now, the subdued nature of investor sentiment is something we’d consider to be a positive data point for US equities on a 6-12 month basis, even if the recent decline points to a near-term pullback.
- We’ve highlighted recently how the late summer and fall tends to be weak for US equity funds flows. Right on cue, US equity funds flow saw sharp outflows last week in preliminary data from EPFR. We’ve taken a look through other categories we track regularly to identify the sources of weakness. These included institutional flows on both the active and passive side as retail flows were positive. US equity funds domiciled outside of the US also showed sharp outflows while flows to US domiciled funds were essentially flat, pointing to likely rotation away by non-US investors. All styles (including blend funds) saw outflows as did both Small Cap and Large Cap funds (including again both active and passive).
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative.