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THREE BIG THINGS YOU NEED TO KNOW TODAY: First, we lift our YE 2024 S&P 500 price target to 5,300 (from 5,150). The most constructive model in our tool kit indicates upside to ~5,400, which represents our bull case if our base case is too conservative. Second, we continue to see some conflicting cross currents for stocks. Among the five models that we use, our economic, valuation, and cross-asset work are sending the most constructive signals, while our sentiment and politics work are less enthusiastic. Third, we lift our 2024 S&P 500 EPS forecast to $237 (from $234), which remains slightly below the bottom-up consensus.
Two big things you need to know today: First, our work on the R2000 relative to the S&P 600 (sparked by Small Cap PM concerns about low quality) adds to our belief that the US came close to recession in 2022. Second, CFTC buyside positioning in US equity futures rebounded last week ahead of the Fed, highlighting increased risk of a melt-up in the broader US equity market.
Three big things you need to know: First, Energy has been a top S&P 500 sector since January. We like its attractive valuations, improving funds flows, and role as an inflation hedge in our overweights. Second, Large Caps are starting to look a little better than Small Caps on a few of the earnings-related metrics that we track, suggesting to us that Small Caps’ sluggish performance of late isn’t all about Fed and inflation fears. Third, sentiment continued to slip on one of our main sentiment models from elevated levels.
Three big things you need to know: First, one of our key sentiment indicators has started to retreat after hitting extreme levels, which has coincided with a stealth rotation in leadership. Second, we’re starting to see a more broad-based improvement in US GDP expectations, which we see as supportive of continued rotation in stock market leadership. Third, Biden put out his wish list in Thursday’s State of the Union, giving equity investors a taste of his goals in a potential 2nd term.
Three big things you need to know: First, in our most recent analysis of global commodity investor flows, we have observed that total commodity investor AUM has started off the year on a weak note. Commodity-linked exchange traded products have continued to decline, led by gold, and commodity index AUM also weakened last month. This has set 2024 up for quite the balancing act, but we remain hopeful. Second, with gold playing such an outsized role in the weakness dominating commodity AUM, it may be surprising that gold prices have actually held up quite well. We have continued to call out gold’s price resilience, especially in the context of investors having remained on the sidelines. This compared to the gold-positive narrative of eventual rate cuts has left gold itself facing quite the balancing act. Third, a balancing act that has for the most part not played out in a commodity’s favor so far this year is US natural gas. It has touched lows recently amid weak weather-linked demand, buoyant supplies to date, and general bearish sentiment. We have described it as a commodity that has fallen a bit too far, seemingly waiting for a catalyst, but are recent headlines enough?
Three big things you need to know: First, 4Q23 reporting season stats are similar to what we’ve described over the past few weeks with fewer earnings beats than last quarter, muted stock price reactions following earnings prints, and further compression in the forecasted growth rate embedded in consensus earnings expectations for 2024. Second, in our review of last week’s S&P 500 earnings calls the tone was mixed on the macro, negative on China, and had a positive tilt on the consumer. Third, two of the charts in focus in our Europe/UK meetings last week included our chart showing how the earnings dominance of the top 7 names in the S&P 500 is fading (which may help spark leadership rotation down the road) and our chart showing how net bullishness on the AAII survey may be heading for a 2-standard deviation event (delaying the pullback we have been anticipating).
Three big things you need to know: First, with reporting season almost halfway done, bottom-up consensus expectations for EPS growth in 2024 have shrunk to 9% from 11% – a combination of better-than-expected results for 2023 and a modest dampening of enthusiasm for 2024’s outlook. Second, a murky macro backdrop, elevated costs, and China challenges have been in focus in recent earnings calls along with a better monetary policy outlook. Third, in our high frequency indicators, things that caught our attention included the worsening in the sentiment backdrop for stocks last week and mostly positive data regarding the health of the economy and labor market.
Three big things you need to know: First, we’d describe 4Q23 reporting season as a mixed bag so far. Second, in our transcript review we were struck by the wide range of views on the macro backdrop and outlook as well as the continued emphasis on the challenges associated with inflation and higher costs. Third, things that jumped out in our high frequency indicators last week included some modest improvements on some of our sentiment and valuation models. Plus, one bonus thought on the US Presidential Election.
Three big things you need to know: First, EPS growth in the top 7 names in the S&P 500 is expected to continue outpacing the rest of the index in 2024 and 2025, but to a lesser degree than we saw in 2023. Second, companies have tried to strike an optimistic tone in the first batch of 4Q23 earnings calls, with consumer resilience, macro risks, and the theme of normalization emphasized. Third, the thing that jumped out to us the most in our high frequency indicators last week was the strong reading in University of Michigan consumer sentiment, which stock market performance has been closely correlated with post COVID.
Last week, ahead of earnings, we updated our thoughts on sectors for 2024 for both the US as well as other geographical regions under RBC’s coverage, Europe, Canada, and Australia. The work was based on our own top-down quantitative analysis on earnings revisions, valuations, and macro fundamentals, as well as the results of a survey that we conducted of RBC’s industry analysts in late December and early January. Three big things you need to know: First, across the globe most of our analysts are optimistic on performance in the year ahead, with favorable views on the impact of potentially lower interest rates and, to a lesser degree, favorable views on valuations. Second, in the US, the only region where we do formal strategy sector recommendations, we remain overweight Financials, Energy, and Health Care. We downgraded Tech to market weight, upgraded Consumer Discretionary to market weight, and upgraded Utilities to overweight. Third, in Europe, Canada, and Australia our analysts’ top sectors according to the survey varied, but Utilities was among the top sectors in the eyes of our analysts in each.
We've updated our thoughts on the 2024 outlook for the US equity market, focusing on the top 10 things we’re thinking about as the new year gets underway. The biggest things you need to know: First, in December we became concerned about the possibility of a near-term pullback in the US equity market given deterioration in our sentiment work, and that remains the case today. Second, despite these near-term concerns, we remain constructive on the S&P 500 for the full year and recently revised up our YE 2024 S&P 500 price target to 5,150 from 5,000. Third, we see a mix of tailwinds and headwinds for US equities in the year ahead. Tailwinds include valuations that can stay higher than many investors realize. Headwinds include highly bullish sentiment, expectations for a sluggish economy, and uncertainty around the 2024 Presidential election. Fourth, we continue to see a number of problems for the Large Cap Growth trade and we give an edge to Value and Small Caps in the year ahead. But for a rotation into Value and Small Caps to be sustainable, US economic expectations need to improve.
Today in the podcast, our last of 2023, two big things you need to know: First, with just a few trading days left to go in 2023, the S&P 500 is close to a level that our valuation model has been suggesting is a reasonable one. Second, while we remain constructive on the year ahead, several charts that we track regularly are starting to suggest that the rally in the S&P 500 is due for a pause.
Today in the podcast, three big things you need to know: First, similar to the S&P 500, R2000 returns tend to be positive but modest in Presidential election years. Second, the valuation appeal of Small Caps runs deep and exists within both Growth and Value using both equal weighted and market cap weighted P/E’s. But Small Caps’ valuation appeal has only recently emerged on equal weighted P/E’s, helping explain why Small Caps have had a difficult 2023. Third, investor sentiment is on the cusp of looking overly enthusiastic again on the weekly AAII survey, restraining our enthusiasm for the US equity market in the near-term.
Today in the podcast, our initial 2024 outlook. Our year-end 2024 S&P 500 price target is 5,000, for a 10% gain. Today the podcast will work a little bit differently, as we’re running through the top 10 things we’re thinking about in US equities as the new year comes into view. Most of these focus on the math that gets us to 5,000.
Three big things you need to know today: First, Growth sectors are typically the biggest beneficiaries of declining 10-year Treasury yields. This analysis was in focus in our meetings last week where investors were keen to explore what to own if yields have peaked. Second, Small Caps, where balance sheet concerns have overshadowed attractive valuations, were also in focus in our meetings last week. Friday’s unemployment report also provided another reason to be taking a look at Small Caps now. Third, there were a lot of interesting updates in our high-frequency indicators last week, with the most important one being that the deterioration in US equity investor sentiment finally has started to look too extreme. The stock market has had a strong start to November, and the move seems deserved in light of what we’re seeing in most, though admittedly not all, of our sentiment indicators.
Today in the podcast, we take a deep dive into the stats and commentary for 3Q23 reporting season, as of late last week with 45% of S&P 500 results in. Three big things you need to know: First, the S&P 500 stats simply aren’t strong enough to get the US equity market out of its recent malaise. Second, Small Cap trends are pretty similar to those in Large Cap, which is good for Small Caps because Large Caps no longer have an EPS advantage. Third, in our transcript reading the overarching theme so far is one of bending, not breaking, but the pessimistic tone is striking.
Today in the podcast, we take a deep dive into the outlook for the US equity market from the S&P 500 all the way down to Small Caps. Three big things you need to know: First, we are sticking with our YE2023 S&P 500 price target of 4,250. Though upside risks remain, downside risks have grown, the outlook has become cloudier and we don’t think the pause in the S&P 500 rally that we called for in early August is done yet. Second, we continue to believe that Large Cap Growth is in need of a tactical correction, but we also acknowledge its longer-term fundamental appeal which is why we think the leadership transition has been so tough. Third, Small Caps remain intriguing from a valuation and earnings perspective, but have been dragged down by balance sheet concerns, rising bond yields, and lingering economic angst.
Three big things you need to know today: First, we are lifting our S&P 500 EPS forecasts to $223 (up from $220) for 2023 and to $232 (up from $229) for 2024. Second, 3Q23 reporting season is off to a good start in terms of stock price reactions, even though EPS revisions have turned slightly negative and company commentary among the early reporters suggests that the uncertain macro is taking a toll. Third, other things that jump out from our high frequency indicators include an improvement in equity investor sentiment last week and the return of outflows from US equity funds.
Today in the podcast, three big things you need to know: First, Congress reached a deal to avert a government shutdown, for now, but we aren’t convinced this is the end of the current period of equity market weakness, as our main sentiment indicator still has room to fall. Second, CFO economic confidence rose in the latest Duke survey despite heightened concerns about monetary policy. Third, Energy revisions trends continue to improve but are getting close to historical highs. That’s a negative data point for the broader market, but some of the other updates from our high-frequency indicators admittedly lend more support to US equities.
Today in the podcast, three big things you need to know: First, the stock market tends to experience turbulence heading into extended government shutdowns, but the S&P 500 has already done more than half the damage typically seen in those episodes and rebounds that follow tend to be powerful. Second, we view last week’s Fed meeting as a mixed bag for Growth stocks – negative short term but positive long term. Third, things that jump out from our high frequency indicators include continued erosion in investor bullishness, Trump pulling ahead of Biden in the polls, and strong outperformance by Utilities this month.
Today in the podcast, three big things you need to know: First, the Misery Index (inflation plus unemployment) has fallen sharply since last summer, helping explain the surprisingly strong move in the S&P 500 this year. Second, deleveraging was one key theme that jumped out to us from RBC’s Industrials conference last week. Third, other things that jumped out from our high frequency indicators last week include the recent improvement in bottom-up 2023 S&P 500 EPS forecasts and the return of US equity fund inflows driven by passive funds.
Today in the podcast, our thoughts on two sectors that are important to the Cyclical/Value trade. Two big things you need to know. First, Energy still looks interesting on our models despite strong outperformance as summer came to an end. Second, we remain market weight Industrials, but find its been one of the more interesting sectors to discuss in meetings, as we see pluses and minuses for the sector that may not be fully understood.
Today in the podcast, two big things you need to know: First, AI leadership bounced back as the summer came to a close, but tactical problems with the Growth trade remain. Second, things that jumped out in our high frequency indicators last week included improving EPS revisions in Energy and Financials and an improvement in 2024 GDP forecasts, both of which support a transition in stock market leadership back to Cyclicals and Value.
Today in the podcast, three big things you need to know: First, historically, the US equity market tends to have a weak start in Presidential election years before rallying back ahead of the event, while trends tend to turn choppy again in the months around the event itself. 2024 could be different given the unusual circumstances in the upcoming race, but the history is still worth a quick look back. Second, while last week’s mega cap Tech earnings were generally viewed as strong, it didn’t change the fact that the Large Cap Growth trade has tactical problems (i.e., overvaluation, stretched positioning) that need to be resolved. Third, developments in our high frequency indicators were mixed for equities this past week, with improvements in earnings revisions trends and individual investor sentiment, but continued deterioration in trends for US equity funds flows. Overall, we remain concerned that the “breather” in the US equity markets that’s been underway hasn’t fully played out yet, but also consider ourselves to be more neutral than bearish on stocks from here.
Today in the podcast, our thoughts on 2Q23 reporting season as it winds down for the S&P 500. Three big things you need to know: First, the overall stats have been decent, with some clear soft spots. Reporting season has been fine in our view but not good enough to fend off a bit of choppiness in the equity market. Second, Energy stands out positively at the sector level, along with Health Care. Third, we are saying goodbye to 2Q23 reporting season feeling as though equity investors are in a bit of an information vacuum – which seems likely to contribute to choppiness in US equity markets for the time being.
Today in the podcast, an updated overview on our market call. Three big things you need to know: First, we’ve tweaked our S&P 500 EPS forecasts up modestly by $1-2 to $220 for 2023 and $229 for 2024, while leaving our YE 2023E S&P 500 price target of 4,250 unchanged. While one of our models highlights potential upside to ~4,800, and we think the gains in the index so far in 2023 have been deserved, we have become concerned that the rally in the S&P 500 is due for a pause in the months ahead. Second, we continue to see tactical challenges for the Growth trade, though we continue to like Growth over Value longer term. Third, Small Caps continue to look more appealing on our work overall than Large Caps, and we remain comfortable adding exposure there despite near-term risks to market direction broadly.
Today in the podcast, we take a deep dive into the stats and commentary for 2Q23 reporting season, based on data through July 28th when 51% of S&P 500 results were in. Three big things you need to know: First, the stats have improved since our last update and we’re now on track for a more solid reporting season. Second, in terms of the sectors that are shining, Energy and Materials continue to rank highly in terms of stock price reactions to EPS beats, but Tech is also standing out positively on some stats. Third, in terms of commentary, the level of conversation around prior headwinds like inflation continues to dissipate, while topics like AI, inventory destocking, and normalization have been in focus. In the ongoing discussion of outlooks and current conditions, commentary has been mixed though consumers are still described as resilient.
Two big things you need to know today: First, actively managed long-only funds are underperforming their benchmarks for the year in most of the US categories we are tracking, with Small Cap Value emerging as a bright spot. Second, the cross currents for US equities are getting more complicated based on our high frequency indicators. We discuss negatives (sentiment, flows, valuations vs. Europe) and positives (better economic expectations, and the broadening of leadership) that we see.
Today in the podcast, three big things you need to know: First, late last week we lifted our 2023 and 2024 S&P 500 EPS forecasts to $219 and $227, respectively. Second, the rebound in consumer sentiment that’s underway explains a lot about the stock market this year – both have been recovering off recession-like conditions since last year. Third, some of the things that jump out from our high frequency indicators currently are that investor sentiment continues to creep towards overbought territory, and low quality factors have started to perk up within Large Cap. Both speak to the idea that the US equity market is in the midst of one big recovery trade this year.
Today in the podcast, an update on our outlook for sectors within the US, and some thoughts on sectors from a global perspective based on the results of our latest RBC analyst survey which now includes our teams from Europe, Canada, and Australia in addition to those in the US. Five big things you need to know: First, across the globe, RBC equity analysts are most constructive on Health Care and are least constructive on Consumer Staples. Second, RBC analysts are most constructive on Europe in terms of their performance outlooks, but there is some important nuance to their regional views. Third, looking at the US specifically, our analysts are most constructive on the performance outlooks for Health Care, Energy and Financials, and are least constructive on the performance outlooks for Consumer Discretionary, Consumer Staples, and Utilities. Fourth, in terms of our own US Equity Strategy sector recommendations, we have made two changes, lifting Financials to overweight from market weight and lowering utilities from overweight to market weight. Fifth, cyclicals also stand out in our survey and quant work on Europe.
