This week in the podcast we take alook at what we learned in the second full week of 2Q21 reporting season. Threebig things you need to know: First, the overall tone from management teamsimproved in week 2 relative to week 1, with a focus on the strong demand andcash deployment backdrop, increased confidence on the 2nd half, and COVIDconcerns toned down. Second, while we generally sensed a better tone regardingthe ability of companies to manage through margin pressures, we also came awaywith the impression that management teams are inclined to see generalinflationary and supply chain pressures as enduring for a bit longer. Third,while upward earnings revisions are still happening, we continue to see asoftening in earnings sentiment driven by deterioration in Financials, ConsumerStaples, Health Care, and Utilities specifically and Value, Defensives, andCyclicals more broadly.

This week in the podcast, we take alook at what we learned from week 1 of 2Q21 reporting season. The two bigthings you need to know: (1) 2Q21 reporting season got off to a sour start, butit’s too early to gauge the overall tone, as last week’s reporters were mostlyFinancials, and their weak stock price reactions, stand in contrast to the morepositive reactions seen by the early reporters. (2) COVID discussions haven’tdisappeared from management commentary which have highlighted ongoing vigilanceon the Delta variant. This may contribute to additional pressure on thereflation trade in the near term, as the Large/Small, Growth/Value, andSecular/Cyclical trades have started to move in tandem with domestic casecounts again.

This week in the podcast, werun through our thoughts on 2Q21 reporting season, which gets underway thisweek.  Three big things you need to know: (1) 2Q21 reporting season is offto a good start, based on the stats of the early reporters. (2) An importantshift in earnings sentiment has occurred, with Cyclicals, Value, and Financialsweakening. (3) Our recent analyst and investor surveys suggest inflationimpacts will be one of the key issues to monitor.

This week in the podcast, we runthrough the results of our 2Q21 US equity investor survey, conducted June 22nd– 29th. The respondents were mostly US focused and based portfolio managers.All were institutional investors. The big things you need to know: Overall, USequity investors remained optimistic, though optimism did fade a bit relativeto our late March survey. Cash deployment and economic outlooks are strong,though valuations, margins, inflation, COVID variants, the Fed, and Washingtonpolicy are all weighing on sentiment. Interest in reflation trades is alsofading.

This week in the podcast, wetake a look at the historical playbook around Fed tapering and hiking, and whatit means for our US equity market outlook. We’ve moved into the flattening campon multiples, as Fed rate hikes are historically a headwind for forward P/E’s.While we don’t think these trades are done playing out yet, we think Fedtapering and rate hikes, and the cooling off of economic growth that’s alreadyanticipated for 2023, put a potential expiration date on the rotation intoValue, Cyclicals, and Small Caps.

This week in the podcast, we discuss the resultsof our June survey of RBC’s equity analysts. The big things you need to know:(1) Outlooks for performance over the next 6-12 months remain constructive,driven by optimistic views on fundamentals and cash deployment. (2) The resultsa guide for the best ways to get exposure in three distinct parts of the USequity market - Financials & Energy within Cyclicals, InformationTechnology within Secular Growth, Health Care & Utilities within ClassicDefense. (3) The survey helps to set the stage for what we expect to be animportant earnings season, with roughly half of our analysts saying it isunclear to what extent inflationary impacts are baked into company guidanceand/or consensus estimates.

This week in the podcast, we recap our thoughts on how we’d play defense in the very near-term, if short-term macro indicators like ISM are in the process of making a peak – something we think the decline in 10 year yields throughout most of 2Q may have been signaling. Our bottom line – we worry a peak in major macro indicators like ISM could spark a pullback in the market or a pause in the rotation into Value and Cyclicals. We think there’s a case for adding some exposure to Classically Defensive sectors in the near-term. But longer-term we still like Cyclicals. 

This week in the podcast, Lori takes a deep dive into the holdings of actively managed Large and Small Cap funds, based on their 1Q filings. Though the data lags, it usually provides important insights into active manager positioning and sentiment, and this time it was actually quite insightful. The big thing you need to know – the favorite stocks of long-only managers in both Small Cap and Large Cap aren’t performing very well in 2021, but it doesn’t really matter as the funds themselves are still having a very good year, due to good stock picking in 1Q and some favorable sector exposures.

This week in the podcast, Lori does a slightly early, mid-year check in on her outlook for the US equity market. Three big things you need to know: First, we’re sticking with our market call and 4325 target on the S&P 500. Slipping sentiment and peaking economic and earnings indicators may contribute to a brief pullback at some point during the 2nd half, but the longer-term economic outlook remains constructive. Second, we remain neutral US equities relative to non-US equities, but are admittedly feeling better about the latter. Third, while we wouldn’t be surprised to see Small Cap underperform in a broader market pullback, we continue to see considerable opportunity in Small Caps longer-term and are maintaining our bias to Small over Large.

This week in the podcast, Lori discusses her takeaways from last week’s release of 1Q21 13fs for major hedge funds. The big thing you need to know: the most popular Large Cap stocks in hedge funds in terms of the Dollar value owned, which we call the Hot Dogs, have continued to underperform in 2021 in a significant way. At the sector level, big reversals in performance have been seen for the most popular hedge funds stocks in the Communication Services, Consumer Discretionary, and Tech sectors, with the most popular names lagging this year. But Energy has bucked the trend as the most popular hedge fund names in the sector have outperformed. Lori also discusses what surprised her about positioning in Financials among hedge funds.

In this week’s podcast, Lori discusses why she believes the unwind in big Tech isn’t done yet. She cites five reasons: (1) positioning in Nasdaq futures hasn’t bottomed out; (2) valuations have improved but aren’t compelling; (3) the sector tends to underperform when inflation expectations are rising; (4) earnings revisions trends appear to be peaking; and (5) ETF flows to the sector have dried up.

This week in the podcast, Lori discusses the latest changes to her S&P 500 forecasts. Earlier this week, we lifted our 2021 S&P 500 price target to 4,325, up from 4,100.  We also raised our 2021 and 2022 S&P 500 EPS forecasts, baking in a moderate increase in the corporate tax rate to the latter. Our bottom line: we see a little more room for stocks to climb higher this year, but we also continue to expect a pullback/heightened volatility before the year is done, capping that upside.

This week in the podcast Lori discusses where we are in the earnings cycle, and what it means for stock prices going forward. The big thing you need to know: while 2021 S&P 500 EPS is tracking better than expected, we think expectations for decelerating EPS growth in the back half of 2021 are a major hurdle for the stock market, and help make the case for a short-term pullback, or volatility, in the US equity market in the months ahead.  

This week in the podcast, guest host Sara Mahaffy, RBC’s ESG Strategist, runs through the team’s latest work on ESG fund flows, valuations, and ESG momentum. Following a strong surge in 2020, ESG fund flows have eased back in February and March, keeping the team on guard for better valuation opportunities in ESG leaders. In addition, we found that the REITs sector moved up the rankings in our ESG momentum analysis (which looks at sectors seeing the most recent improvement in ESG) this April.

This week in the podcast, we run through our initial thoughts on Biden’s plans to raise corporate taxes. We think Trump’s tax cuts played an important role in fueling strong equity market returns in 2017 through 2019, and our work suggests Large Cap Growth was one of the biggest beneficiaries. We also believe that Biden’s proposal to raise corporate taxes to fund his infrastructure bill has been impacting rotation within the US equity market recently. Investors have been worrying about higher corporate taxes all year, and the stocks that were the biggest beneficiaries of Trump’s tax reform have stumbled recently, telling us risks are getting baked in now. Run time: 6 minutes.

In this edition, Lori reviews the results of her latest US equity investor survey. The big thing you need to know: The mood of the market is slightly less optimistic than our December survey. Slightly better valuation assessments and improved outlooks for EPS and the US economy are a big part of the reason why investors remain optimistic. The reasons why investors reined in their enthusiasm a bit include concerns about the timeline for the return to normality, the new COVID variants, the stronger dollar, inflation, fiscal policy, and the Fed.

In this edition, Lori tackles the topic of the US Dollar, and what its recent strengthening means for the US equity market. The consensus view coming into 2021 was for the US Dollar to weaken, but that may be starting to reverse. A stronger Dollar is mostly a negative for the US equity market in terms of performance, earnings revisions, and margins. But sector impacts aren’t uniform, and it’s a challenge for the stock market that should be thought of as looming in the distance rather than one that’s likely to hit stocks imminently.

In this edition, Lori gives her take on the Growth vs. Value debate that has become a key underpinning of positioning within the US equity market. She reiterates her preference for Value over Growth in 2021 due to: a better cash deployment profile in Value, stronger earnings momentum in Value, a greater positioning problem in Growth, extended Growth valuations relative to Value, Value’s status in the market as a reflation trade, and surging ETF flows for Value. Lori acknowledges that these are all intermediate term reasons to prefer Value. Ultimately, she believes the ability of Value to continue leading longer term depends on whether the economy can sustain above-trend GDP growth in 2022 and beyond.

In this edition, we discuss the results of our March 2021 survey of RBC’s equity analysts, in which we asked them to quantify their outlooks for their industries on 6 issues – performance, cash deployment, margins, valuations, fundamentals, and policy. Overall, our analysts are optimistic on performance, cash deployment, fundamentals, and margins. They are less enthused about the state of valuations and the Washington policy backdrop, and are split on the impact of inflation. Our Financials team stood out for being the most constructive on several questions, supporting our ongoing overweight on the sector. Our Consumer Staples team stood out for seeing a major, positive change in view since the start of the year, supporting our upgrade of the sector to market weight.

In this edition, we discuss three reasons why we believe Mid Caps offer opportunity within the US equity market: (1) greater exposure to cyclicals than Tech/Internet/Media/Telecom, (2) plenty of runways on positioning, and (3) attractive valuations relative to Large Caps.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, we discuss why we remain overweight in Financials sector, a key part of the reflation trade. Among other reasons, we like the sector’s cash deployment, earnings, and valuation profile. We also discuss the favorable macro tailwinds in place.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her thoughts on the outlook for Small Cap stocks in the US. Three big things you need to know: (1)  Lori sees greater opportunity in Small Caps than Large caps on a long-term, 3-5 year view, but prefers a more neutral stance on the two size segments on a 6-12 month time horizon. (2) In terms of stock price performance, Lori thinks Small Caps may benefit more in the short-term from a Trump re-election than a Biden win in this fall’s Presidential election. (3) Lori’s work finds that individual investors on the Robinhood platform have been more engaged with Large Caps and Nasdaq stocks than Small Cap stocks, helping to explain why Small Caps haven’t seen consistent outperformance since the mid-March low in the US equity market. Disclaimer:https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her takeaways from 2Q20 earnings season so far. She and her team recently did a deep dive into the trends in beats rates, forward-looking revisions, and commentary on earnings calls for the 63% of S&P 500 companies that had reported 2Q results as of Friday, July 31st. Three big things you need to know: (1) Similar to May and June economic data, 2Q earnings have been less bad than feared, but the reaction in the stock market has been very mixed – up until the big Tech results came in at the end of the month. (2) The rate of upward EPS estimate revisions (earnings sentiment) has continue to surge, but we are on guard for a peak before too long. (3) Among the major sectors, Consumer Staples and Tech have been positive standouts, while Energy and REITs have been negative standouts.Disclaimer:https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her thoughts on the 2020 Presidential Election in the US, and specifically how investors should be positioned for a Biden win. She’s put together a sector playbook based on the policy leanings of the Biden campaign and her July survey of RBC Capital Markets’ research analysts. She also discusses why Biden’s proposed increase in the corporate tax rate is a key challenge for the stock market. Finally, she discusses why she views the election as a mild, negative catalyst for US equities in the second half of 2020 and risks to her view. Disclaimer:https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her outlook for the S&P 500 in the 2nd half of 2020. She’s lifted her year-end 2020 S&P 500 target from 2750 to 2900, but there’s no change in her overall message – she continues to expect choppy markets in the back half of the year and see downside risk from current levels. Lori discusses her latest thoughts on valuation, sentiment, earnings, and seasonality.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses updates her thoughts on some of the more important daily and weekly indicators that she tracks. Four big things she’s learned over the last week: (1) The S&P 500 has been surging, but defensive undertones remain. (2) A pivotal earnings season is underway, in which we see risk of downward revisions. (3) Signs of stress remain in short-term indicators. (4) Stocks are starting to trade more in sync with Biden’s chances of winning in November than Trump’s.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses the latest developments in some of the more important daily and weekly indicators that she tracks. Two big things she’s learned over the last week: (1) bearishness continued to build among both institutional and individual investors, based on her review of the latest updates from CFTC on asset manager positioning in US equity futures, and the weekly individual investor survey from AAII. Second, she sees evidence that worsening virus trends may be starting to adversely impact consumer and small business behavior, putting the rebound in the S&P 500 at risk.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses the results of her latest quarterly US equity investor survey, which was conducted June 15th – 22nd and included mostly institutional US focused equity investors. There are two key findings. First, bearish outlooks on the US equity market are rising, while bullish views are retreating. Second, the survey identified several things behind the increase in bearishness – valuation concerns have risen to a new survey high, most of our participants expect a long, slow recovery, and fears of a 2nd wave of the coronavirus are high as are worries about the outcome of the 2020 election in the US.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses two trends she’s keeping a close eye on right now. The first is the extent to which incoming economic data is positively surprising forecasters, something that’s been an important driver of US equity market performance recently. The second is the performance of the most popular stocks in actively managed, long-only Large Cap funds (known as the Lions), which experienced an important reversal in fortunes in mid-May.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses Small Caps, both her outlook for the Russell 2000 and performance trends in the top stocks of Small Cap portfolio managers. Tactically, she expects Small Caps to continue outperforming Large Caps as long as the broader US equity market remains in rebound mode, and to underperform Large Caps in any pullbacks. In terms of the performance of Small Cap managers’ favorite stocks, she’s seen several sharp reversals in performance recently, with the most popular stocks outperforming strongly YTD, lagging in the late March – early June rebound, and a return of outperformance in Thursday’s sharp sell-off.

In this edition, Lori discusses the China trade war, the civil unrest in the US, and the outlook for S&P 500 earnings. The stock market has been more focused on the China trade war than the protests because the implications of the trade war are more clear. On Earnings, she highlights how the rate of upward revisions is starting to improve, helping stocks for now by feeding the “things are getting less bad” narrative. She also reiterates her view that there’s still risk lurking in 2021 estimates, which could be a problem for the market later this year. Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her takeaways on the latest hedge fund filings. The most popular stocks in hedge funds have been outperforming throughout the first half of 2020. Hedge funds ended 1Q20 with greater exposure to Health Care.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page

In this edition, Lori discusses her thoughts on the outlook for the S&P 500. She expects US equity markets to stay choppy in the months ahead and another drawdown. There’s no change to her year-end S&P 500 target of 2750.Disclaimer: https://www.rbccm.com/en/policies-disclaimers.page