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Welcome to RBC’s Markets in Motion podcast, recorded November 10th, 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, earnings sentiment staged a partial comeback last week as the rate of upward EPS estimate revisions for the S&P 500 moved up again slightly vs. the prior week but remained below its August high. Second, we run through the latest big picture takeaways from S&P 500 earnings calls. Third, other things on our mind include our work the valuation profile of high earnings quality stocks within Small Cap and how we’re thinking about the government shutdown.

If you’d like to hear more, here’s another 5 minutes.

Starting with Takeaway #1: What Stands Out On The Earnings Stats

• There was no major change on our two favorite reporting season stats.

• Reporting season remains strong from the perspective of beat rates.

• Additionally, the rate of upward EPS estimate revisions for the broader market indices improved again last week, but remains well below its August high.

• What’s more interesting is a chart we added back to our deck on 3Q25 bottom-up consensus operating margin expectations for the S&P 500.

• This stat came down meaningfully for the index in late October. Tech was the main sector bucking the trend and showing improvement.

• Deterioration in margin expectations has been masked by strong beat rates, but is likely a contributor to the sour mood seen this reporting season, at least for those paying attention to the details.

• Also interesting is that consensus forecasts expect Small Cap net income growth to peak in 2026. Bottom-up consensus forecasts for the Russell 2000 still expect the Small Cap benchmark to experience higher growth than the S&P 500 in coming quarters, but the data is now showing a deceleration in net income growth in the final quarters of 2026 for the Russell 2000, robbing the Small Cap benchmark of some of the earnings excitement those bullish on this corner of the US equity market had been highlighting.

Overall, earnings continue to provide a solid foundation for the US equity market due to the resiliency of the C-suite, and earnings sentiment improved last week for the second week in a row. But that improvement wasn’t enough to challenge the notion that earnings sentiment peaked over the summer.

Moving on to Takeaway #2: Color from Last Week’s Earnings Calls

Most of the key themes we’ve been highlighting were also intact last week in our transcript reading.

• On the macro, commentary continues to be best described as mixed, with the best tone coming from Tech and Health Care.

• On the consumer, companies continued to describe the consumer as stressed, soft, choiceful, and cautious yet resilient, with disproportionate stress on the lower income and a subdued DIY market, and weakness in younger cohorts.

• On tariffs, companies continued to highlight the complicated and dynamic trade backdrop, the uncertainty that that has created alongside some optimism conditions may improve or settle, and how they are managing through with price increases, supply chain adjustments, and shifts in production. Margin impacts were also discussed. One company caught our attention when they said: “With the Supreme Court hearing arguments right now, there's still a lot of uncertainty on what happens;” and “there potentially could be upside dependent on what the Supreme Court rules, but there – I'm certain there would be some reactions by the administration as well on additional tariffs in other areas.” Their thinking largely reflects how we’ve been thinking about this in regard to the broader market. On this point, it’s worth noting that last week betting markets shifted hard towards the idea that SCOTUS will not uphold the IEEPA tariffs.

• On the shutdown, few companies were sounding the alarm, similar to prior weeks. Some highlighted modest impacts in the markets most directly affected, delays in regulatory actions, or commented that the shutdown was adding to uncertainty. Meanwhile, others indicated that impacts had been minimal or had been contained, in some cases due to advanced funding.

• On AI, last week’s transcripts contained “more of the same” on this topic, with companies highlighting strong demand, data center growth and its ramifications, and how the technology had added / would add to efficiencies, productivity, and better customer experiences.

Wrapping up with Takeaway #3 –Quick thoughts on Small Caps and the Shutdown

• We’ll start with the price for quality in Small Caps. As we’ve discussed the recent underperformance of stocks with higher earnings quality within the Russell 2000 with Small Cap PMs, one client asked us whether the high-earnings-quality cohort has gotten cheap. To investigate, we looked at the median multiple of the high-earnings-quality cohort on a few different valuation metrics, relative to its own history (we did not do these charts relative to low quality, since it’s more difficult to even measure valuations for those names). We found that the high-earnings-quality cohort looks reasonably valued (thought not cheap) on a median forward P/E (in line with the historical average) but less appealing on sales-based multiples.

• And last but not least, the Shutdown. Stocks ended last week on a positive note as expectations the government shutdown would end soon picked up. That optimism dissipated on Saturday but returned on Sunday amid new headlines out of DC. While the policy cross-currents are complex, in the very near term we think an end to the shutdown would be beneficial to the stock market as it did appear to be a contributing factor to the indigestion the stock market experienced over the past week. But we don’t think it will solve all the stock market’s problems as issues like stretched valuations, the peak in earnings sentiment, and AI jitters remain.

That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.