Welcome to RBC’s Markets in Motion podcast, recorded February 9th. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets.

The big things you need to know: First, we through our thoughts on last week’s choppy price action in the S&P 500 and reiterate our 7,750 12- month-forward S&P 500 price target. Second, we update the stats we’re tracking for 4Q25 reporting season, which generally bounced back in our latest update but remain weaker than what we’ve seen in past reporting seasons.

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

Starting with Takeaway #1: Thoughts on a Choppy Week in US Equities and Reiterating Our 7,750 12-Month-Forward S&P 500 Price Target

After rallying back on Friday, the S&P 500 ended the week close to flat. But before Friday’s recovery, the index was down 2.6% from its latest all-time high. While it wasn’t pleasant, the week didn’t alter our view on the path for stocks in the year ahead.

• We’ve been here before, and not too long ago. We’ve had four different similar 2.4-3% drawdowns in peak over the last 6-7 months. There was one that was a bit worse, the one ending 11/20/25, that represented a total decline of 5.1% from peak (that admittedly felt much worse at the time). It’s possible that this latest bout of weakness has played out for now.

o If there’s more pain to come, we think it’s reasonable to anticipate a tier 1 garden-variety pullback in the 5-10% range. As we highlight in our “Four Tiers of Fear” framework, in the post-GFC era, serious drawdowns that have exceeded the 5-10% range have tended to be growth scares, when fears of a systemic issue or recession surface – similar to the environment seen a year ago when the S&P 500 fell 18.9% around the liberation day tariff announcement. While we take concerns about the AI trade and private markets and other matters seriously, we think it’s premature to assume that’s the kind of risk we face today.

• Heading into last week, a few of the indicators we track were signaling a potential short-term problem. As we’ve discussed the market sell-off last week, we’ve found ourselves referring to a few different charts that we track regularly.

o The first highlights how bitcoin and an index of private market-related stocks, as well as other risk or sentiment indicators, turned lower right before or right around when the S&P 500 experienced its 5.1% drawdown last fall. Some of these had been showing signs of weakness in early 2026, generating some concern in our minds about a looming bout of risk aversion in stocks.

o Second, the two versions of the Russell 2000 forward P/E that we track had both returned to levels in line with or very close to their November-2024 highs, their most recent major peaks. This was interesting to us for a few reasons. One of these P/Es (the FY2 P/E) had helped to mark the bottom in stocks in April 2025 when it returned to typical recession lows and has been a good lens into inflections in the broader market. Additionally, Small Caps have been one of the primary expressions in US equity markets recently of the rotation trade.

o Third, stock market optimism slipped a bit (after returning to levels close to most past peaks) in the latest Conference Board consumer confidence survey. To us, this was a potential sign of fading froth among the much-discussed but-difficult-to-track retail investors who have been viewed as being a strong underpinning of stock market performance over the past year.

• Looking ahead, our models still argue for solid gains in the stock market over the next 12 months. With February underway, last week we completed our pre-planned monthly refresh of the math behind our 12-month-forward S&P 500 price target. After running through this exercise, we are sticking with our 12-month forecast of 7,750, and note that there were no significant changes in signal from the five models that we use to arrive at that forecast since our last update in early January. Our sentiment model, which is elevated but not euphoric, points to a 9% gain. Our valuation/EPS test plus our earnings yield gap analysis both point to strong gains going forward, with the former baking in the current bottom-up consensus S&P 500 EPS growth of 13% in 2026 along with a forecasted year-end P/E derived from expectations of modest improvement in inflation, a few more cuts from the Fed, and stable 10-year yields. Finally, our Fed and GDP tests point to solid 12-month forward gains of 13% and 10%, respectively, if the Fed cuts a few more times and real GDP ends the year in the 2.1-3% range (both are in line with current consensus estimates and the latter has been moving up).

Moving on to Takeaway #2: 4Q25 Earnings Stats Still Look a Little Softer Than We’d Like, but Did Firm Up a Bit Last Week

In our last podcast, we noted that the stats around 4Q25 reporting season were looking a “little squishy” – something we think also contributed to the weakness in the stock market that occurred last week. In our latest update, the stats still aren’t as strong as they’ve been in the past, but did firm up a bit, which may have also contributed to Friday’s bounce-back. Here are the highlights:

• The EPS beat rate for the S&P 500 stabilized last week, but is still lagging behind 3Q25 reporting season. As of our latest update, the percent of companies beating consensus on EPS was tracking at 78%, up ever so slightly from our previous update of 77%, but still a bit below the 82% rate from 3Q25 reporting season. The Russell 2000, by contrast, continues to show improvement on both stats vs. last quarter.

• The rate of upward EPS estimate revisions for the S&P 500 moved up last week, but remains below last September’s peak. In our latest update, our favorite gauge of earnings sentiment – the rate of upward EPS estimate revisions – has rebounded back to 54%, up from 51% in our prior update. Despite the improvement, that stat is still well below the rate of upward EPS estimate revisions that was seen in early September (65%). In terms of sectors, the thing that jumped out to us the most was that the S&P 500 Tech sector, while still seeing mostly upward revisions, has seen a deceleration in those revisions after returning to levels nearly back in line with past peaks. This modest fall from grace reverberated strongly in stock prices, however, and the reaction in prices speaks to how high the bar had risen. Also of note, the Russell 2000 is seeing a slightly higher rate of upward revisions than the S&P 500 (55.7%), indicating that the S&P 500 has lost dominance from this perspective.

• Outright improvement in the most important stat. Even with all of these issues, the bottom-up consensus EPS forecast for the S&P 500 in 2026 is now rounding up to $314, back on track to +13% growth for the year. Earlier in reporting season, this stat had slipped a bit below $313.

On a final earnings related note, our team did continue to read through S&P 500 earnings call transcripts last week looking for macro takeaways and breadcrumbs. Key themes were similar to prior weeks. They included a cautiously optimistic and mixed overall outlook with a bit less focus on geopolitics, a cautious yet resilient consumer with no real change in overall narrative that we picked up on, ongoing tariff talk with pricing, mitigation, and manageability in focus along with the idea hat impacts would lessen later this year. From a generalist perspective, the AI discussion was also more of the same as AI was described as an enabler of transformation with an emphasis on creating efficiency and productivity improvements, fostering innovation, enhancing customer and employee experiences, and controlling costs. Data centers and capex remained in focus. We noticed more emphasis on brand enhancement, agentic AI capabilities, and competitive moats and proprietary data last week than in the past, but this may be a function of us paying more attention to those details. Stock price reactions,which hit both the disruptors and the disrupted, suggest to us that the bar may have simply been too high heading in, and that the AI jitters we’ve seen in the investment community since August simply needed to be realized with some overall derisking taking place.

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