Welcome, to RBC’s Markets in Motion podcast, recorded June 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 three big things you need to know: First, consensus expectations for 2026 are inching up for S&P 500 EPS in a broad based way, a positive data point for the stock market but a slight one. Second, net bulls on the AAII survey have moved up sharply, and formally entered a less robust forward return environment last week. Third, the seasonal playbook reminds us that in recent years June and July have tended to be strong for the S&P 500 but that the transition into fall has been tricky with declines often seen in the August – October time frame.

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Now, let’s jump into the details.

Starting with Takeaway #1: 2026 S&P 500 EPS Forecasts Are Inching Up Across The Board

• The most interesting question we received from a client last week focused on recent trends in 2026 S&P 500 forecasts. As we dug into the data a couple of things stood out.

o First, the increase in 2026 EPS growth rate forecasts for the S&P 500 has been fairly modest in nature. The growth rate for the index next year embedded in consensus estimates bottomed at 13.1% on May 16th, and had risen to 13.47% as of June 6th. The high for the year was 14.2% in mid March.

o Second, the increase that has been seen since mid May has been fairly broad based. Improvement in recent weeks has been seen for the Mag 7 as well as the index ex the Mag 7 (with a bit more strength in the Mag 7) and for all sectors aside from Consumer Discretionary, Consumer Staples, and REITs.

o Third, the decline that has been seen relative to YTD highs is also fairly broad based. Despite recent improvements, the expected growth rates embedded in consensus remain below YTD highs for the broader index, the Mag 7, and the index ex the Mag 7, as well as all sectors. The sectors that are closest to their YTD highs are Tech and Financials.

• While we see this as a positive data point for the broader US equity market, we see it as a slight one that will also go through an important stress test in the next reporting season when 2Q results come in.

• For now, this data is sending us the same signal as our earnings revisions indicators, which have been on the mend for the S&P 500 including the top 10 market cap names and the index excluding those top ten market cap names, but not off to the races.

Moving on to Takeaway #2: Investor Sentiment in the AAII Survey Formally Entered A Less Favorable Range Last Week

• When we adjusted our target last week, we observed that the main gauge of investor sentiment that we use in our price target modeling, AAII net bulls, was on the cusp of moving into a less favorable range for future stock market performance. As of a more recent update, this indicator is now no longer officially more than one standard deviation below the long-term average, and is back in a range that tends to be followed by gains of 5% on a 7-month forward return basis.

• By contrast, when this indicator is in the -1 to -2 standard deviation range, forward returns on this time frame average more than 7%. When this indicator is more than 2 standard deviations below the long-term average, as was the case from early March to mid May, 7-month forward returns tend to average more than 10%. This is all just another way of saying that while this indicator has not yet turned negative, the sentiment set up for the stock market is far less favorable than just a few weeks ago.

• Looking beyond AAII, there are some signs that nervousness is creeping back in to some of the other sentiment indicators we track. Correlations within the S&P 500 fell sharply after hitting COVID highs earlier this year, but are starting to inch up again.

• The recovery in Trump’s net approval and net favorability, which have been fairly aligned with S&P 500 performance, has also stalled.

• The widely watched ISM manufacturing and services surveys also came in below expectations last week and failed to inflect or stabilize as we’d seen in the widely watch consumer sentiment surveys from Conference Board and University of Michigan the prior week.

Wrapping up with Takeaway #3: Seasonality

• We’ve been starting to pay a little more attention of late to seasonal patterns. In recent years, the S&P 500 has been strong in June and July, with a tendency to experience weakness in the August-October time period. This keeps us mindful that even if stocks continue to climb in the near-term, the transition into the latter part of the year is often tricky.

That’s all for now. Don’t forget to vote! Thanks for listening. And be sure to reach out to your RBC representative with any questions.