RBC's Markets in Motion

Three big things you need to know: First, earnings season has been fine so far, and what we’ve read has kept us in the “tired goldilocks” camp. Second, we run through the latest updates for the indicators we’re monitoring in the rotation trade. We are mindful of headfakes, but think the trade may still have some room to run in the short term. We also still think whether a durable multi-year leadership transition is underway remains to be seen. Third, individual investor sentiment took a big hit last week per the AAII survey, while US equity flows have remained strong, keeping us on guard for an end to the current pullback.

Four big things you need to know: First, investor sentiment has gotten as extreme as it did last August and this past March. Second, earnings season is off to a solid start, but we are still looking for some additional evidence in support of the idea that we’re seeing a durable leadership shift rather than a short-term rotation trade. Third, we’ve been monitoring our other high frequency indicators for clues on the rotation trade. Some suggest the rotation trade has room to run but others are less clear. Fourth, we highlight what we’re watching in the equity market regarding the US election and our initial thoughts on how Biden’s decision to withdraw may impact US equities.

Two big things you need to know: First, we see 2Q24 reporting season as a key test for the rotation trade that attempted to start up again last week. Second, we remain worried about a pullback in the S&P 500 given the latest developments on our sentiment and positioning work, but timing seems a bit more complicated due to last week’s CPI print and surge in optimism on Fed cuts.

Three big things you need to know: First, we are lifting our YE 2024 S&P 500 price target to 5,700 from 5,300, which we would characterize as a nervous raise. Second, we think the risks of a short-term pullback in the S&P 500 are growing, similar to what occurred in April. Third, on positioning, we think it will be tough for the US equity market to see a sustainable leadership transition away from mega cap Growth until we are through the economic soft patch.

Three big things you need to know: First, the Duke CFO survey highlights how C-Suite confidence has remained steady, with monetary policy and automation in focus. Second, our new valuation stress test suggests the S&P 500 has been baking in optimistic views on inflation, interest rates, and the Fed. Third, recent funds flow trends point to a lingering desire for a shift in market leadership.

RBC’s Markets in Motion is the weekly podcast from Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, highlighting her latest views on the US equity market. This week, we are excited to have Chris Louney, Commodity Strategist on RBC’s Global Commodity Strategy and MENA Research team, guest hosting this week’s episode while Lori is out.

Three big things you need to know: First, while gold prices have had a strong rally this year, having hit record highs last month, we remain cautious. We think that gold is overvalued from the perspective of a number of key macro drivers and that there are some unrealized vulnerabilities to the pillars of gold’s rally. While we are cautious, it’s more because we do not think gold should be at such high levels just yet. Second, while May and June have seen a less weak and more rangebound trend for gold-backed ETPs, we are not convinced that investors are beginning to follow through just yet. Investors sold their gold holdings as prices rallied, and we’ve yet to see a sustained return to buying. Third, central bank demand has been a key pillar to the gold rally but as China’s pause in purchasing showed, there are vulnerabilities. To be clear, we still think that central bank demand will continue to be strong, but there are reasons to be cautious on the volume at record prices and after such a sustained period of strength.

Three big things you need to know: First, the continued outperformance of mega cap Growth stocks has been logical, but still somewhat jarring to us. Second, Small Caps broke to clear new lows relative to Large Caps last week as risks piled up including a Fed that seems inclined to cut just once this year. We’d stay on the sidelines with Small Caps for now. Third, investor sentiment continues to concern us, and we’ve added consumer sentiment to our list of worries for the stock market following the Michigan survey miss. One offset is that the US may benefit from safe-haven seeking if flows to European equity funds deteriorate.

Special Edition: This is a special edition of RBC’s Markets in Motion podcast, recorded on June 4th, 2024, from the RBC Capital Markets 2024 Global Energy, Power & Infrastructure Conference (EPIC). Lori is joined by two of her road warrior colleagues, Ben Fisher (Midwest Equity Sales, specializes in macro) and Amy Wu Silverman (RBC’s Equity Derivatives Strategist). The format this time is a bit different from the typical Markets in Motion podcast. Ben moderates a discussion with Lori and Amy about the big things you need to know from their recent conversations on the outlook for equities. Topics include stock market concentration and the potential catalysts for leadership rotation, the influence of retail trading, and views on the Energy and Utilities sectors.

Two big things you need to know: First, we highlight how and why old leadership in the US equity market has returned with a vengeance and run through our latest thoughts on what might get the rotation trade going again. Second, several of the gauges of investor sentiment and equity market risk that we track are keeping us neutral on stocks through year-end for now, and tactically cautious.

The big things you need to know: First, Small Caps are retesting their relative low vs. Large Caps once again, as Fed rate cut optimism has faded once again. We remain neutral Small vs. Large for now. Second, investor sentiment has almost returned to the highs in place to start the year (as well as the summer of 2023) on the AAII survey, reinforcing our neutral stance on the broader US equity market for now. Third, our S&P 500 valuation model continues to suggest that the broader US equity market is fairly valued, with some modest downside risk if current inflation, interest rate, and Fed assumptions end up being too rosy. For a material move higher in the market by year-end to be justified on the math, we think investors will need to start focusing on the outlook for 2025, where visibility still seems a bit limited.