We’ve just completed our quarterly survey of RBC’s equity analysts around the globe. Two big things you need to know: First, optimism on performance persists for most sectors and coverage regions, despite the challenges associated with higher interest rates. Second, within the US (and S&P 500 specifically) we are upgrading Materials to overweight, downgrading Health Care to market weight, and downgrading REITs to underweight.

If you’d like to hear more, here’s another five minutes. Now, let’s jump into the details.

• Starting With Takeaway #1: Our analysts are generally optimistic on performance.

o They also generally have favorable views on valuation and positive demand assessments, while acknowledging the challenges associated with higher interest rates.

o On performance, Canada and Europe have the most positive tilt, while Australia has the least constructive tilt. The US is in the middle.

o Performance outlooks are positive for most sectors globally, with the most optimism for Materials and the least optimism for Consumer Staples.

o Across all four of the core outlook questions that we asked, Energy has the highest average score at the global level and the most favorable assessment of demand.

o Regionally, valuations are seen as better in Europe and Canada than the US or Australia.

o At the global sector level, valuations were seen as most attractive for Materials, Utilities, and Financials, and least compelling for Consumer Staples.

o Generally, we see this data as supportive of our market call for 5,300 at year end. Even though we think the recent pullback may not have fully played out, we still think this will be a good year in the market and see some upside from hear at the end of the year.

o We also see the surveys results as supporting for further leadership rotation in the market. The bottom-up view from our analysts points to more opportunity in cyclicals and Value and non-US than US Large Cap Growth.

• Moving on to Takeaway #2: Within the US (and S&P 500 specifically) we are upgrading Materials to overweight, downgrading Health Care to market weight, and downgrading REITs to underweight.

o Along with our own quantitative analysis, our US analyst survey results are one input into our strategy recommendations on the S&P 500 sectors.

o With a fresh set of survey results in hand, we’ve decided to make these three changes.

o On our Materials upgrade to Overweight: Our analysts are much more constructive than those in other sectors on their performance outlook, and we also like what we see on our strategy tools – positive funds flows, attractive valuations, a tendency to lead when ISM mfg rises, and a tendency to outperform in 2nd half of Presidential election years. We also see this sector as a beneficiary of leadership rotation in the market back to Value and Cyclicals.

o On our Health Care downgrade to Market Weight: It’s important to note that our analysts still like the sector; this move is driven by 3 things on our strategy/quant work: valuations are no longer attractive, it often underperforms in 2nd half of Presidential election years, and it tends to underperform when interest rates are rising.

o On our Real Estate downgrade to underweight: Our analysts are modestly positive analysts on their performance outlook, but that only takes their ranking to the middle of the pack vs. other sectors… we’ve been looking for another sector join Consumer Staples as an underweight for a while… and there are three things on our strategy work we don’t like here; flows are negative, it lags when rates are rising, and it has a weak track record in 2H of Presidential election years.

o Note that there are no changes to our other S&P 500 sector calls – we remain overweight Energy, Financials, and Utilities; underweight Consumer Staples; and market weight other sectors.

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