The big things you need to know: First, several things that US equity markets have been linked to (breadth, bitcoin, private market fears, Fed cut expectations, consumer sentiment) have gotten better in recent updates. Second, a few signals from our year-ahead outlook analysis have shifted over the past week. Third, there have been a few interesting twists and turns in positioning since Thanksgiving week in terms of sectors and factors.

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

Starting with Takeaway #1: Several Things That Stocks Have Been Linked To Have Gotten Better

After experiencing a 5.1% drawdown, the S&P 500 has rallied back strongly starting the Thursday before Thanksgiving. What exactly has the stock market been thankful for? To answer this question, let’s review the list of tactical challenges we highlighted before Thanksgiving.

On the positive side, the breadth of the US equity market has improved, bitcoin has stabilized, and fears around private markets have faded (this issue rarely came up in last week’s client meetings, and we’ve also seen better price action in the public companies related to private markets).

Additionally, expectations for the Fed to cut in December have firmed up.

And on Friday, the stock market also got good news from the University of Michigan consumer sentiment report, where headline sentiment moved up and came in ahead of forecasts due to improving expectations.

These are all things which have been positively correlated with S&P 500 performance in recent months and years or have been indicators which have provided useful tactical signals about near-term price action.

For some of the other tactical indicators we flagged before Thanksgiving, recent trends constitute less of a tailwind for stocks but appear to be headed in the right direction. For example, the rate of upward EPS estimate revisions for the S&P 500, its top 10 names (a proxy for Mag 7), and the rest of the index have moved up, but failed to recapture their summer highs. We think it’s still fair to say that earnings sentiment, while still quite strong, may have peaked.

Valuations are another example. NTM P/E’s for the S&P 500, its top 10 market cap names, and the rest of the index, along with the Nasdaq 100, have only shown very modest improvement of late. It’s possible these charts will look much better once new earnings data cycles in.

We are also keeping a close eye on retail flows to passively managed US equity funds, which are still deteriorating. This potential sign of fatigue among retail investors stands in contrast to commentary we heard from investors over the past week expressing confidence the retail investor has not yet slowed down.

Next, Takeaway #2: A Few Signals Have Shifted Slightly Since We Published Our Year-Ahead Outlook

Right after we got back from Thanksgiving, we walked through the five models that feed into our 7,750 12-month forward S&P 500 price target as well as our thoughts on the Growth/Value and Small/Large trades going forward. Since we’ve published that price target, there have been a few shifts in the signals from the analysis that feeds into those calls, which are modest in nature but still interesting.

On the S&P 500 outlook, one of the primary new developments is that net bulls in the AAII survey have rebounded sharply, taking the four-week average back into a range that’s been followed by an average 12 month forward return in the S&P 500 of 10.8% – a slightly weaker signal than the prior update which feeds into our price target. Previously, net bulls were at a level typically followed by a 12 month forward return in the S&P 500 of 15%.

By contrast, the signal from our GDP model strengthened slightly, with consensus real 4Q26 GDP estimates moving up to 2% yr/yr. With this move, the signal from this model is on the cusp of a more favorable range for 12 month forward S&P 500 returns (the current signal is for a 5.7% move in the S&P 500, the average 12 month return when quarterly, real GDP yr/yr is in the 1.1-2% real GDP range; the signal would become 10.3% if the 4Q26 yr/yr real GDP forecast moves into the 2.1-3% range).

On Small Caps, the main development last week was that ISM manufacturing came in weak yet again. We’ve been feeling better about Small Caps due to improved valuations and earnings revisions trends, but our enthusiasm remains restrained by our sense that it’s still not clear to us that a truly hot economy is on the horizon. Small Caps are widely understood to be more sensitive to the domestic economic cycle than Large Caps, and the ISM manufacturing gauge is one of the cyclical indicators we watch closely for our Small Cap call. Typically, Small Cap outperformance is accompanied by an upswing in ISM manufacturing, a condition that is simply not in place at the moment. The tick up in consensus GDP forecasts last week is admittedly a step in the right direction for Small Caps, but a tiny one. The consumer sentiment improvement is more encouraging.

Wrapping up with Takeaway #3 - Three Interesting Twists & Turns on Positioning

• To start with, EPS quality is flip flopping again. On our factor work, high EPS quality is starting to underperform again, reversing a brief period of renewed leadership that had been calming the nerves of many of our Small Cap PM clients and contributing to our own increased comfort level with Small Caps. This has occurred alongside an improvement in passive flows back into Small Caps and quantum names perking up.

• Next, a few sectors are trading places. Within the S&P 500, renewed outperformance by the Tech sector has come alongside a fade in leadership from Health Care. Health Care still looks reasonable on our valuation work and earnings and revenue revisions and flows to the sector remain strong. We continue to count it among our more interesting market weight sectors, but it may simply be it’s being treated as a defensive alternative to Tech.

• EPS revisions re-energized in Energy. In last week’s client meetings, investors seemed particularly interested in our thoughts that Energy, like Health Care, has been a cheap S&P 500 sector with positive funds flows, and that we’d seen some improvement in EPS revisions for the sector prior to Thanksgiving. We cautioned our clients that we’d need to wait and see if the improvement in EPS revisions for Energy would stick. Our latest update indicates that S&P 500 Energy does indeed remain in slight positive territory on the rate of upward EPS revisions.

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