The big things you need to know: First, weakness in Homebuilders doesn’t bode well for the recent outperformance of Small Caps. Second, we’ve continued to see some slippage in earnings sentiment (the rate of upward EPS estimate revisions) for the S&P 500, which has been driven by companies outside of the biggest market cap names. Third, bulls picked up sharply in the AAII survey last week. Fourth, our work on US equity market performance in the 12-month period following non-recession-related Fed cuts and reset cuts highlights upside risk to our 2H26 S&P 500 target price of 7,100. Fifth, capex growth improved in 2Q25. Sixth, US equity funds flows bounced back last week, driven by US-domiciled funds.

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

• Moving on to Takeaway #2: the earnings chart that’s still bothering us. We continued to see some slight slippage in the rate of upward EPS estimate revisions for the S&P 500 in last week’s update. Digging in deeper, the slippage has been generated by deteriorating trends in the S&P 500 excluding the top 10 market cap names. The rate of upward EPS estimate revisions has continued to strengthen for the top 10 names, which helps explain the resurgence in leadership of those biggest market cap stocks and Growth stocks generally in recent trading. Overall, this divergence in earnings sentiment is a negative data point for the broadening leadership thesis.

• Next - Takeaway #3: Bulls bounce back. Net bulls on the weekly AAII survey improved in last week’s update. As of 9/18/25, the weekly data point for net bulls had moved back up to -0.7%, while the four-week average was back to -9.43%. For now, the four-week average is still in the -1 to -2 standard deviation range that has historically been followed by a +15% 12-month-forward return in the S&P 500, but the weekly data point is not. We’ve spoken at several group events for institutional investors over the past few weeks, in which one of our colleagues had asked those who expect stock prices to be higher by year-end to raise their hands. Most hands had gone up. While the AAII survey is of individual investors, its latest move also seems to capture the shifting mood of institutions.

• Moving on to Takeaway #4: Fear of fighting the Fed. This week, we’re highlighting a new chart that examines S&P 500 performance in the 12-month period before and after different kinds of Fed cuts. Stocks tend to move up in the 12-month period following cuts, unless the cuts occur during or before a recession. Reset cuts (those after a long pause within a cutting cycle) have a median 12-month-forward return of 13%, while non-recession cuts tend to have a median 12-month-forward return of 21%. The analysis highlights upside risk to our 7,100 2H26 S&P 500 price target.

• Wrapping up with Takeaway #6: US retail roars. We’ve been writing a lot in recent weeks about how flows to US equity funds have deteriorated in recent months. Last week, flows bounced back. Interestingly, passive retail flows to US equity funds, which had weakened a bit in recent weeks, also bounced back last week. Interestingly, flows stayed weak to non-US-domiciled US equity funds, while there was a sharp move up in flows to US-domiciled US equity funds. In other words, last week’s improvement in US equity funds flows appears to have been driven by US-based investors and retail investors in particular.

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