• First, the investors we met with this past week in our trip to London, and Switzerland, were keen to explore other opportunities in US equities beyond Semis/Tech/AI, but had difficulty envisioning what those were.
and Russell:
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Takeaway #1: What investors wanted to talk about on our trip to London and Switzerland last week.
• Some of the topics they were most interested in discussing were AI, earnings, and sector views - there was, overall, more interest in positioning than broader market direction.
• Midterms came up in several meetings as well, with curiosity about our thoughts on whether additional stimulus ahead of the event was likely (we said it was unlikely), and interest and surprise when we noted that betting markets have been starting to turn more optimistic about the possibility of a Republican sweep.
• The health of the US consumer and our thoughts on Small Caps were other recurring questions.
• Iran came up less than we expected, where we sensed wariness as opposed to panic.
• Fed discussion was light, and there wasn’t a lot of focus on the inflation prints, but we also proactively walked investors through the potential impact of higher inflation and interest rate assumptions on our S&P 500 outlook via assumptions in our valuation/EPS model, which we discussed in our most recent target price update.
• The conversations we had on AI, earnings, and sectors were subsets of a bigger discussion.
nsus EPS growth forecasts for:
• …AI names showing expanding EPS growth leadership in 2026 vs. Mag 7 and SPX broadly were well received.
• Despite this, and some noting that they’d had plenty of exposure to this trade and were performing well, there was a clear interest in exploring what other areas might offer better opportunities going forward.
• There seemed to be agreement with our view that alternatives are tough to identify.
• On commodities – there was more interest in talking about Energy than I’ve seen in a long time in Europe. We pointed out that valuations still looked slightly attractive in the S&P 500 sector.
• On Financials – while we wouldn’t say everyone was bullish, there was clear interest in discussing this sector, and our chart showing how Capital Markets valuations got extremely high last year but have come down was well received.
• And Consumer Staples came up in defensive discussions. Investors shared our frustration with Health Care where we’ve seen weaker EPS revisions and flows, and we noted Utilities might get caught up in affordability concerns around the midterms. One idea that came up in conversation that seemed to really resonate was that of Staples’ problems being well known and that is was already cheap – unlike Consumer Discretionary where problems are known but the sector looks pricey, or Industrials where companies have been emphasizing the ability to manage through and the sector looks expensive.
Moving on to Takeaway #2: What else jumps out.
• On the momentum trade, we’re keeping a close eye on our work that looks at the performance of high price momentum relative to low price momentum within the S&P 500. On our work, high price momentum has continued to rise and outperform low price momentum stocks.
• In a new chart, we’ve started looking at the NTM P/E of both high and low price momentum stocks. We’ve seen P/E expansion in high price momentum and contraction in low price momentum. Relative to low price momentum, high price momentum valuations are a little above average but not highly stretched.
of the index, and the Russell:
• Geographically, strengthening upward EPS estimate revisions in the US stands in contrast to continued deterioration for Canada, Australia, UK, and Japan and could help extend the US leadership trade.
and Russell:
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
