Welcome to RBC’s Markets in Motion podcast, recorded March 30th, 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: First, the tactical indicators we’ve been tracking to gauge when equity investors’ fears may have gone too far continue to show signs of significant deterioration but are not yet pointing to extreme fear suggesting more downside in stocks remains possible in the near term. Second, other things that jump out include new stress tests on our valuation/EPS model, the latest C-suite tone, the signals from our US GDP model for the S&P 500 if consensus forecasts start to erode, and evidence of derisking in equities in the latest funds flows data.

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

Takeaway #1: Our Tactical indicators Are Still Not Sending a “Hold Your Nose and Buy” Signal

• Investor sentiment remains bearish, but still isn’t back to 2022 or 2025 lows. As of 3/26/26, net bulls on the weekly AAII survey were at -17.7% on the weekly update and -14.1% on the four-week average. The latter remains between one standard deviation and two standard deviations below the long-term average. Longer term, we believe this remains good news for the stock market as the four-week average is at a level that has, on average, been followed by a gain of 15.0% in the S&P 500 on a 12-month-forward basis in the past. As of Friday’s close, the S&P 500 was down 8.7% from its late-January high, approaching the outer edge of what we’d consider to be a tier-1 garden-variety pullback (5-10%) on our tiers of fear framework. If we breach 10% on the S&P 500 drawdown, an eventual move into tier-2 growth-scare territory (a decline of 14-20% from the January peak) also seems possible for the S&P 500. In that case, we’d be on the lookout for our AAII indicator to fall to more than 2 standard deviations below average on the four-week average, which occurred in late 2022, spring of 2025, and during the GFC.

• Small Caps look cheap, but perhaps not cheap enough. As of Thursday’s close, the bottom-up FY2 market cap weighted median P/E for the Russell 200 had fallen to 14.98x, slightly below the long-term average of 15.2x, but not yet back to the lows of 2022, 2023, and 2025 when it fell slightly below 13x. This is important because Small Caps are commonly viewed as the most cyclical part of the US equity market. Additionally, in recent years Small Cap performance has also become closely linked to investor views on the path of the Fed policy rate, where many have recently had to price out anticipated cuts for 2026.

• The bottom-up S&P 500 forward NTM P/E is also falling rapidly. As of Thursday’s close, this P/E had fallen to 21x, slightly above its own-long-term average of 18.5x, but well below the highs of last fall when this indicator hit +28x . While it wasn’t a helpful bottoming signal in 2023 or 2025, back in 2022 this indicator fell back down to average, helping to mark the low in the broader market.

We’ve been asked what it could take to get the S&P 500 from a tier-1 garden-variety pullback (a move 5-10% below peak) into tier-2 growth scare-drawdown territory (14-20% below peak, roughly the 5,600-6,000 range in today’s pricing). Our review of the other growth scares that have occurred in the aftermath of the GFC (2010, 2011, 2015-2016, 2018, and 2025) suggests these types of pullbacks have involved genuine fear of a recession starting to emerge, in some cases involving an unfamiliar challenge that’s not well understood and seen as potentially getting out of control. Most of the investors we spoke with last week have not been concerned about a significant growth shock in the US emanating from the conflict in Iran and have expected the war to be over soon, though doubts on the latter in particular grew as the week wore on. It’s not clear to us what investors can tolerate in terms of the duration of the conflict (client comments last week were generally one to a few weeks with one telling us a few months), but if recession or severe domestic growth shock fears start to emerge in a serious way, it could be enough to pull the S&P 500 into tier-2 growth-scare territory on a short-term basis.

Moving on to Takeaway #2: What Else Jumps Out

• First, we’re stressing our stress tests a little bit more. Last week we updated the stress tests we’ve been using with our valuation/EPS model, which was one of the most constructive models in our toolkit ahead of the war. For our main P/E projection, we took our inflation assumption up to 4% and our 10-year yield assumption up to 5%, while keeping the Fed funds rate flat. We now look at five flavors of earnings, ranging from sticking with the current bottom-up consensus at the high end to 10% contraction vs. 2025 at the low end. The fair value outputs for the S&P 500 range from roughly 7,400 at the high end to a little more than 5,700 at the low end.

• Second, we continue to track the C-suite’s tone. Several investors asked us last week when any cuts to EPS forecasts might come due to the war in terms of timing. We pointed out that the continued climb in the bottom-up consensus S&P 500 EPS forecast for 2026 (which is now tracking at $323) has been driven in large part by the Tech sector and the Mag 7, which have less sensitivity to the war. We also noted based on our transcript reading that companies are in the early days of understanding the ripple effects of the war and some have buffers through inventories and hedges that may last a few quarters/6 months. We suggested that it might not be until the July/August reporting season that companies can credibly adjust numbers. We continued to keep an eye on company commentary on the war in last week’s transcripts and would add that several emphasized the difficulties associated with forecasting the impacts, some were starting to adjust their fuel/cost assumptions, and some adjusted guidance. That makes us more open to the idea that we could start to see some material changes to forecasts starting in April, but we continue to believe it will take more time for companies to understand what the impacts will end up being.

• Third, we’re also keeping an eye on US GDP forecasts. Last week we got some questions about the potential hit to economic growth from the conflict. We discussed what kind of reduction in the GDP outlook would be needed to trip up the US equity market in a profound way. Adjustments would need to be major, not modest. Quarterly real GDP (yr/yr) in the 2.1-3% range tends to be associated with a strong equity market and S&P 500 returns of slightly more than +10% over the same 12-month time frame. That’s in line with the consensus expectation as the war began. One level down, in the 1.1-2% range, the average S&P 500 return falls to a bit less than +6%. Two levels down, when GDP falls to the 0.1-1% range, the average S&P 500 return turns negative.

• And finally, last week’s funds flows point to derisking in equities. The latest weekly update from EPFR pointed to outflows from US equities funds. This was not that surprising to us, as we’ve seen other weeks of outflows from this category in early 2026. What jumped out to us more was that we also saw outflows from European equity funds, Global equity funds, and growth and value and blend funds within the US equity category. We also noticed sharp deterioration in flows to LatAm and EM.

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

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