Welcome to RBC’s Markets in Motion podcast, recorded March 2nd, 2026. 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: We run through five things we’re thinking about regarding recent developments in the middle east from a stock market perspective. Then, we wrap up with a few things we’re watching in terms of general stats to help us know when the recent risk off mood in markets may have played out.

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

Starting with five thoughts on the Middle East.

#1: We think the US equity market was already starting to digest the escalation in the region coming into the weekend. The S&P 500 has moved sideways so far in early 2026, reined in by a fairly long list of concerns – AI fears, private markets concerns, an underwhelming reporting season, extended valuations, and an increase in a few different flavors of geopolitical risk. On this latter point, it’s worth noting that expectations the US would strike Iran in betting markets were fairly elevated throughout early 2026, though expectations that Khamenei would be out as Supreme Leader in betting markets were lower. Both the choppiness in the S&P 500 this year and the outperformance of the Energy sector were reflecting heightened geopolitical risk to some degree.

#2: Historically, elevated geopolitical uncertainty isn’t good for S&P 500 P/E multiples broadly, which have already been under pressure since August. In recent years we’ve seen some deterioration in S&P 500 median P/Es when uncertainty regarding national security has spiked in spring 2025 (Liberation Day tariffs), 1Q22 (Russia’s invasion of Ukraine), and 1Q20 (COVID). This is something we also saw in early 2003 as the US was preparing to invade Iraq.

#3: Elevated geopolitical uncertainty/risk has become a feature of the post-COVID environment, but could weigh on sentiment. On the corporate side, references to geopolitics on public company earnings calls have been extremely high in recent years relative to their pre-COVID history. Companies have often emphasized their ability to manage through challenges, and we tend to see them describing the geopolitical backdrop as evolving, dynamic, unpredictable, and fluid. On Middle East tensions specifically, support for oil prices from Energy companies and boosted demand for hedging from Financials companies have also been discussed. We are eager to see what companies say about the weekend’s developments in coming days, but for now expect the “manage through” messaging to persist. We will also be monitoring how these latest developments in US foreign policy impact consumer confidence/sentiment (which has been stabilizing around extremely low levels in both the Conference Board and University of Michigan surveys) as well as public opinion polls (where voter approval on foreign policy has been extremely low).

#4: We’d be careful paying too much attention to historical studies that suggest always buying stocks on bad geopolitical news. These studies are floating around the Street. We’ve done our own work to look at how stocks have performed following geopolitical conflicts involving Russia or the Middle East since 2000. We sorted them into two categories – bigger wars and more limited conflicts. Our work suggests that the bulls on this issue are technically correct. But also that this idea is really driven by the trends following more limited conflicts. In the three major wars we examined, stocks were down 12 months later in two of them. Stocks were also down in the 12-month period ahead of two of the three major wars, including the one that had the best track record in the aftermath, the second Gulf War of the early 2000s.

#5: When it comes to stocks, it still may mostly come down to the oil market. There has been an inverse correlation of -40% between the S&P 500 and oil prices since COVID. But in our view, the key issue is not whether there is a short-term spike in oil prices. What’s more relevant to stocks, in our opinion, is whether a sustained impact to oil prices is seen, which is what we think would have more of a potential to damage confidence at various levels.

Wrapping up with a few general quantitative things we’re watching to help us gauge when the risk off phase we’ve started to see in stocks may be over.

First, sentiment. In the latest update net bulls on the weekly AAII survey fell to -6.6% on the weekly data point and 0.5% on the four-week average. The weekly data point is close, but not quite back, to one standard deviation below the long-term average, last seen in November helping confirm a bottom in the S&P 500 after a quick +5% drawdown. If another garden-variety 5-10% drawdown is underway (which we’ve been anticipating this year) or something even shallower, this may help us tell when the sentiment unwind has run its course. If a deeper pullback is starting, a return to 2-standard deviations below the long-term average will likely be an important milestone.

Second, we’ve seen some deterioration within the US equity category for US Large Cap, passive institutional flows, and blend flows. While some of the other categories we track have pointed to rotation from Growth to Value, trends in these categories are pointing to more of a derisking phenomenon underway.

And finally, valuations. The market cap weighted S&P 500 NTM P/E remains up at 25.5x, well above its long-term average of 18.5x, which helped mark the low in the index in the fall of 2022. The Russell 2000 FY2 P/E is also worth keeping an eye on. At 16.9x, it’s not too far below November-2024 highs. Last spring after the Liberation Day tariffs, it fell just below 13x, into a range that is often seen during recessions and similar to the lows of the fall of 2022 and 2023. And at the industry level, the P/E of the Capital Markets industry (made up of investment banks, retail trading/crypto-related names, and asset managers including alternatives with private markets exposure) has seen its valuations improve significantly, but is still sitting near long-term averages as a whole on both absolute and relative P/E. These will all be key to watch if stocks weaken from here.

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