Welcome to RBC Markets in Motion podcast, recorded September 29th, 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, we review what clients were most interested in talking about on our trip to the UK last week, which included differences between US and UK investor sentiment, valuations, geographical funds flows, and sectors. Second, we recap the macro tidbits we picked up from last week’s S&P 500 earnings calls (where the auto-related names had a negative tone), our takeaways from the Duke CFO survey that came out last week (optimism about their own companies moved up slightly), and what we learned from our review of how stocks have traded around government shutdowns in the past.

If you’d like to hear more, here’s another 6 minutes.

Starting with Takeaway #1: Issues in Focus on Our Trip to the UK

We spent several days last week in the UK seeing institutional investors with an interest in US equities. Here’s a rundown of the things they were most interested in discussing, and our replies:

• First, differences in US and UK investor sentiment. We spent three days seeing investors in London, and from the beginning it was clear that the state of US investor sentiment, and how it compared to investors in the UK, was of keen interest. From the beginning, UK investors sounded cautious, both generally and on the US in particular, which stood in contrast to the more constructive tone that we’d started to see in our NYC meetings in September. In our discussions on the state of US investor sentiment, we pointed out how net bulls in the weekly AAII survey had fallen sharply in August and early September, but had started to move back up in mid-September. We noted that even though AAII is a retail investor survey, we thought its trends were still a good representation of the shift in tone we’d been hearing among institutional investors in the US in recent weeks as well. By the end of our UK trip, we started to point out that some of our US clients had thought our recently introduced 7,100 2H26 S&P 500 price target was too low, but that a few of our UK clients had told us they thought it was too high. Importantly, while UK investors sounded cautious last week, they didn’t sound nearly as negative as they had the last time we visited the city in December 2024. Back then, we’d describe the tone as alarmed. Today, we think cautious or concerned is a much better description.

• Second, valuation concerns were clear. In most of our UK meetings, the investors we spoke with proactively brought up the problem of elevated valuations in the US. As a result, we spent some time highlighting our charts on the bottom-up, market cap weighted S&P 500 FY2 P/E, the equal weighted FY2 P/E of the top 10 market cap names in the index, and the FY2 P/Es of the Nasdaq 100 (both market cap and equal weighted), which have all been stalling near post-Tech bubble highs. These charts have contributed to our own concerns about the possibility of a short-term pullback in the S&P 500 before year-end. By illustrating how the “workhorses” of the US equity market (i.e., those with the best fundamental narrative) have been priced for perfection, these charts have also helped us understand why angst about the mega cap growth trade and AI theme have kept popping up since mid-August, resulting in a few down days in the S&P 500 of late. Investors we spoke with in London also expressed some concerns about whether the AI trade had gotten a bit ahead of itself. In these discussions, we noted that through 2Q25, S&P 500 capex growth was close to peak levels, and that we’ll be keeping a close eye on what companies say about AI-related spending in the upcoming reporting season. In the last reporting season, we didn’t see anything in the AI discussions that caused us to think companies might be pulling back.

• Third, geographical flows. Another topic that came up in a number of our UK meetings was what we’re seeing in terms of funds flows into the US. Here, we highlighted our weekly charts that track flows into and out of different countries and regions, along with those that parse these flows by fund domicile. These charts have been telling us that both US and non-US-domiciled equity funds (a proxy for US and non-US investors) have both generally seen flows to the US deteriorate in recent months, and that the push into European and German equity funds seen earlier this year faded over the summer. We also noted that the flow data indicated that equity fund investors hadn’t settled on a new area of focus. In recent months, inflows or improving trends to various regions and countries have ended up being short-lived.

• Where we have seen a sustained interest is into global ex-US equity funds, though that has also lost some momentum in recent updates.

• Interestingly, last week’s update (which we saw after our trip was over) highlighted how Western Europe flows have improved slightly on an overall basis and for funds domiciled within and outside of the US. Flows to non-US-domiciled US equity funds also picked up, however.

• Fourth, sectors. Whenever we go to the UK, as well as Continental Europe, sector selection is usually of interest and this trip was no different. Health Care was one sector where we received a number of questions. In part, we think this is because the sector looks attractive on our valuation work…

• … while earnings and sales revisions have also been quite strong.

• In these discussions, we pointed out that most industries within this sector look appealing on our valuation and earnings revisions work, that the sector has benefited from the weaker US dollar, and that flows to global developed market Health Care funds were recently showing an improving trend.

• As for why we’re staying on the sidelines with a market weight stance, we pointed out that policy risk ranked higher than most other sectors in our mid-year RBC analyst outlook survey. We also noted that we’ve been overweight this sector in the past due to a similar set-up with valuations, earnings revisions, and flows, but that the flows have had difficulty sustaining a strong uptrend. Interestingly, in the latest funds flow update (which came out after our meetings), we could see in the data evidence of another negative shift in flows.

Moving on to takeaway #2: What Else Jumps Out

• First, we’re feeling a little carsick. The handful of S&P 500 companies that reported last week provided a few interesting details on the macro backdrop though signals were mixed. One Tech name downplayed the relevance of H1-B visas to their workforce. An Industrial Services company indicated that they had not seen any significant changes in demand between 1Q and 2Q. One Tech company highlighted robust and broadening data center demand. Another alluded to choppy end markets. On the consumer side, the big retailer that reported didn’t provide much color on the health of their customers, aside from noting that they remain “choiceful.” However, they did provide a deep dive into their “multi-pronged” tariff mitigation strategies, which has included working with suppliers to find offsets, sourcing from different countries and local production, and absorbing some costs themselves and offsetting those costs “to protect the member by improving efficiency and lowering waste and spoilage and those kind of things.” Overall, the auto-related names had more of a negative tone than the other companies that reported. One made various comments pointing to the impact of tariffs starting to show up in pricing along with pressure on the lower-end consumer. After missing expectations, another noted that “while hard to quantify, we believe there was a pull-forward of demand into the first quarter.”

• Next, a C-Suite-ener. The Duke CFO survey, one of our favorite sets of soft data, came out last week prompting us to update our batch of C-suite sentiment charts. In the Duke CFO survey (conducted late August and early September), optimism about their own companies picked up in 3Q25, but remained below prior highs. We think this reflects the tone we heard in the last reporting season. A similar uptick was seen in the 3Q25 Business Roundtable and Conference Board CEO confidence surveys that had previously come out. Trade/tariffs remained the most pressing concern, though overall levels of angst on this issue did ease. Meanwhile, concerns about monetary policy rose a bit, taking that issue to 2nd place.

• Though a clear majority said there had not been an impact, it was interesting to see that 21-25% said their hiring or capex plans had decreased due to changes in tariffs/trade policy.

• And finally, just in case. 2025 government shutdown expectations moved up in betting markets last week as the S&P 500 stumbled. We haven’t gotten many questions on implications for stocks (none in London).

• Still, we’ve taken a fresh look at how the S&P 500 has traded around them since the 1970s. Moves have been directionally mixed and mostly mild during the actual shutdowns.

• This doesn’t tell the full story, and we took a closer look by decade at the S&P 500 drops that occurred near shutdowns. Some (in the 1970s, the early 1990s, and 2018) occurred against the backdrop of sizable drawdowns, but the shutdown wasn’t the main thing impacting stocks then (shutdowns also helped mark the end of 2018’s pullbacks). Other shutdown-adjacent pullbacks (those in the 1980s, late 1990s, and early 2010s) were mild, in the -1.5% to -4.5% range. Our bottom line – we’ve been concerned about a period of digestion in stocks before year-end, but shutdown fears are not at the top of our list of worries given the history.

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