The big things you need to know: First, the three things that stuck out to us in our review of earnings calls last week included outlooks that emphasized resiliency but contained a dose of caution, the conversation on Iran war impacts (present and future) getting underway, and descriptions of cautious but stable consumers. Second, with US equities breaking out to a new 2026 high relative to non-US equities, we note that valuations suggest there’s room for this trade to run and that weak earnings revisions breadth is not a problem unique to the US. Third, funds flows are shifting back to Financials and Growth, which we think makes sense from a valuation and earnings growth perspective.

If you’d like to hear more, here’s another 5 minutes.

Takeaway #1: What We’ve Learned From Earnings – Resilient Outlooks With a Dose of Caution, Conversation on War Impacts (Present & Future) Gets Underway, Cautious but Stable Consumers

We’ve previously described financial markets as being in a discovery process when it comes to how the situation in the Middle East is impacting US public companies and will do so in the future. Last week was an important one in 1Q26 reporting season as we got a diverse set of companies in terms of sector representation. We’re eager to learn more this week when 168 S&P 500 companies are scheduled to report. Here’s what jumped out from last week:

• On the broader macro outlook: Companies generally emphasized the resilience of their businesses. Some noted that demand was steady or that they weren’t seeing material impacts from the war yet, while others highlighted the strength of the AI/datacenter theme. Still, a sense of caution came through. Some described the macro as uncertain and dynamic, while one noted that they had seen an increase in concerns about inflation by their customers. The ongoing impacts of high interest rates and inflation on housing and autos were referenced. A few noted they were maintaining guidance while referring to their desire to stay conservative. One company noted: “Absent the uncertainty in economic conditions related to the Iran conflict, we would have raised our full-year guidance based on our strong first-quarter results.”

• Digging deeper into the Iran war:

• While some companies noted that they weren’t seeing adverse impacts due to the war, others discussed some that they were seeing or anticipated seeing in the future. One Industrial company quantified a modest revenue impact while another noted they had experienced project delays in the region. Meanwhile, one Software company reported a headwind from deal closings in the region.

• Other topics discussed included higher jet fuel and diesel costs, future impacts to air travel demand, facility shutdowns, the use of alternative supply routes, and the use of hedges and other mitigation tools.

• Regarding the potential duration of the conflict, some noted the situation was difficult to predict, while a few indicated that they were baking in a continuation of the conflict through 2Q26 or summer. Other thoughts on timing included one company noting they were hopeful the flow of materials would return in a few weeks, while an Airline noted they had visibility for 4-5 weeks, and a Software company observed there could be energy impacts in Europe if the Strait of Hormuz stayed closed another few weeks.

• A few companies highlighted their ability to pass on or recoup higher costs. Inventory is another topic we’re keeping an eye on. One consumer company noted there might have been some pull-forward by retailers but said they didn’t think consumers were pantry loading. Another company also noted they had not experienced pull-forward in demand.

• Consumers are considered “cautious but stable”: This phrase was used by one Consumer company, which we think did a good job of summarizing the overall vibe. Another company described demand as “measured” and “healthy,” another used the term “steady,” and yet another noted no discernible shift in consumer behavior. An Airline noted they were not seeing demand destruction but thought it was wise to prepare for it. Several companies noted the benefit of higher tax refunds, but one added that consumers were using those dollars cautiously. K-shaped consumer dynamics were referenced by several companies. Affordability, and inflation and interest rate pressures taking a toll were noted.

Moving on to Takeaway #2: Three Things We’re Watching on US Equities Relative to Non-US Equities

• We are keeping a close eye on US/non-US valuations. Our data currently shows that US/non-US is in line with its five-year post-COVID average and is a bit above its longer-term 20-year average but is nowhere close to past extremes. We think this is important since reasonable valuations in the US relative to non-US valuations were something that we believe helped the US safety trade get started after the war, and that a return to extreme levels on these charts could help us know when this trade is getting overdone.

• It’s also worth noting that earnings sentiment has been weakening globally. With the US breaking out to a new high relative to non-US equities in terms of performance, and the rate of upward EPS estimate revisions weakening in the S&P 500, it’s worth noting that we are also seeing a weakening of earnings sentiment (the rate of upward EPS estimate revisions) in other global developed market regions and major countries. In other words, the poor earnings breadth in the US (aside from the mega cap growth/AI-related names) isn’t a unique problem geographically speaking.

And wrapping up quickly with Takeaway #3: The other big thing that jumps out to us are shifts in sector and style flows.

• In our review of EPFR’s global developed market funds flow data, we are now seeing outflows from all defensive sectors (Utilities, REITs, Health Care).

• Otherwise, trends that jump out include deterioration in Energy and Industrials flows alongside improvement in Financials.

• In terms of style, Growth flows are improving (getting less negative) while Value flows are deteriorating.

• We see these as healthy undercurrents for the equity market, given the valuation improvement seen for Financials in the recent pullback, the superior earnings trends of mega cap growth, and the extremely expensive valuations in place for Industrials.

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