Analysts Highlight Earnings Outlook, Sentiment Shifts, and Seasonal Patterns
RBC Capital analysts outlined three significant market trends in a report sent to clients on Monday, emphasizing their potential impact on current market dynamics.
Improving 2026 Earnings Outlook
The first major trend identified by RBC is the broad-based improvement in consensus estimates for S&P 500 earnings per share (EPS) in 2026. “The market’s consensus expectations for S&P 500 2026 EPS are broadly rising,” the bank noted.
This development is seen as a positive factor for equities, though RBC characterized its impact as “modest.” The analysts explained that the implied growth rate within 2026 consensus estimates has increased moderately, with this improvement occurring across a wide range of sectors. Notably, this trend affects both the “Magnificent Seven” tech stocks and the rest of the index components.
RBC Capital views this as “a positive data point for the overall US stock market,” suggesting that improved forward earnings expectations could provide fundamental support for equity valuations.
Shift in Investor Sentiment
The second key trend highlighted by RBC is the significant shift in investor sentiment revealed by the American Association of Individual Investors (AAII) survey. “The AAII survey’s net bullish sentiment has risen substantially, officially entering a zone suggesting less robust future returns,” the analysts noted.
While sentiment hasn’t turned outright negative, RBC emphasized that “the market’s sentiment setup is materially less favorable than it was just a few weeks ago.” This shift is corroborated by other sentiment indicators showing signs of stagnation:
Increased internal correlation within the S&P 500
Very slight outflows from US equity funds
These developments suggest that investor enthusiasm may be waning, potentially creating headwinds for continued market gains.
Seasonal Market Patterns
The third trend identified by RBC relates to seasonal patterns that historically impact market performance. “In recent years, June and July have tended to be strong periods for the S&P 500, but the transition into fall has proven tricky, with August through October often being negative months,” the analysts explained.
This seasonal pattern leads RBC to caution that “even if stocks continue to climb in the near term, the transition into the late end of the year often proves challenging.”
The analysts also noted that the S&P 500’s rebound from its April 8 low “continues to follow the post-crisis rebound path seen after major non-recession corrections since the Global Financial Crisis.” This historical comparison suggests there may be further recovery potential before year-end, though likely accompanied by increased volatility.
RBC’s analysis provides investors with a comprehensive view of current market dynamics, highlighting both positive fundamental factors and potential challenges stemming from sentiment shifts and seasonal patterns. The bank’s perspective underscores the complex interplay between earnings expectations, investor psychology, and historical market patterns that collectively shape market trajectories.
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