• First, despite the strong rebound in the US equity market investor sentiment remained subdued last week. This signals to us that there is room for US equities to run and climb a wall of worry.

• Second, 1Q26 reporting season got off to a strong start last week, evidenced by a sharp pickup in the percent of companies beating consensus EPS forecasts and reassuring commentary from companies.

• Third, other things that jump out in our latest updates include strong outperformance by Large Cap Growth and growth-oriented sectors in April, the low-quality burst of leadership within Small Cap, and strengthening inflows to the US amid outflows from Europe.

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

Digging in A Little More to Takeaway #1: Subdued Investor Sentiment

We saw this in terms of both on data and conversation. On the data side:

• Net bulls on the weekly AAII equity investor survey were at -11.1% as of April 16th, down from the prior week and, on the four-week average, still at -13.5%.

• Both the weekly data point and the four-week average also remained slightly more than one standard deviation below the long-term average.

• That’s ultimately good news for the S&P 500, in our view, as levels of net bullishness between -1 and -2 standard deviations below average tend to be the sweet spot for S&P 500 returns on a 12-month-forward basis, with an average gain of 15%.

On the conversation side:

• We spent several days last week in meetings with long-only US-focused and US-based equity investors outside of NYC.

• While we wouldn’t describe these investors as bearish, they were clearly taken aback by the sharp rally in the major US indices and the quick move to new all-time highs.

• The main concern generating this state of disbelief seemed to be that stocks were simply pricing in too much optimism, with potential ripple effects from the Middle East and energy market disruption still clouding the outlook in terms of potential cost pressures on businesses and consumers and demand/sentiment impacts.

• We did not encounter concerns about Fed hikes or expectations of severe hits to US economic growth.

• While clients were interested in getting our take on private credit, we generally found that most did not see it as a systemic risk.

• And while we didn’t see evidence of euphoria regarding the AI theme, we also didn’t sense anything resembling the AI anxiety that emerged last fall (bubble concerns) or to start the year (major job loss fears). On AI, there was more interest in discussing the capex cycle. Our take was that weak levels of spending by public companies outside of the top 10 market cap names highlight one way the cycle could be elongated.

• Also surprisingly, the investors we spoke with were keen to talk about why US equities had been so resilient since the Iran war began – we highlighted our survey work from early March which illustrated how many sectors and industries were seen as having low exposure, and our work on US/non-US valuations which showed how the US had lost its valuation premium as the war began.

Moving on to Takeaway #2: The Strong Start to 1Q26 Reporting Season

So far in 1Q26 reporting season, which has admittedly been heavily skewed by Financials, the percent of companies beating consensus in the S&P 500 on earnings forecasts is tracking well above last quarter’s levels.

Overall commentary has also been reassuring.

• Uncertainty has been a hot topic in macro discussions. One company noted customers were cautious but engaged, another said no pause in activity as was seen around tariffs.

• On the Consumer: Companies highlighted the resiliency broadly in the various spending, credit, and delinquency stats they track. One company jumped out for their comment that they have seen that it historically “takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices.”

• And on war impacts: A few companies stood out for their observations that impacts had not yet been seen while others alluded to the idea of them showing up in the future. One consumer goods company noted that they were planning for inflation impacts, but that they had a hedging program in place (generally 6-12 months) to give them visibility near term. Another noted the longer the war goes on, the greater the 3Q and 4Q impacts will be.

• And on private credit, we suspect that what we read contributed to the fairly calm tone we sensed among investors on this issue in our conversations last week. One big investment bank explicitly said they don’t see private credit as a systemic risk, but also caught our attention for their comment that in every credit cycle there’s almost always an industry that surprises people for getting caught up in it.

And wrapping up with Takeaway #3: what else is jumping out on our work right now.

• First, on positioning, we’re struck by how strongly Growth has beaten Value and the biggest market cap names have been beating the rest of the market in April. As a reminder, we have been biased in favor of this cohort as it has the best earnings growth story and lingering impacts from the war in Iran seem likely to keep that narrative alive for a while longer by serving as a headwind to the rest of the market.

• And finally on flows. Two things stood out to us on the weekly EPFR funds flows update this week.

o First, we are seeing improvement in retail/passive flows for US equity funds after a brief period of outflows, suggesting retail fatigue contributed to the recent 9.1% drawdown in the S&P 500 and better spirits contributed to its subsequent rebound. We do question whether retail will continue to be a strong buyer of the dip given the pressures of higher gas prices and the deterioration in stock market outlooks that we saw in the recent Conference Board consumer survey.

o Second, we’ve seen improvement in US equity flows broadly, alongside clear outflows from Europe, confirming to us that part of the story of US resiliency of late has been the incremental weakness seen for Europe.

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