Earnings Sentiment Broadens Out

The big things you need to know:

• First, earnings sentiment (the rate of upward EPS estimate revisions) is now improving broadly within the equity market, which we think opens the door for a short-term pause in mega cap Growth leadership within the US and US leadership within global developed markets equities.
• Second, the Growth/Value trade within Large Cap has turned choppy again, which we think may reflect the broadening out of improving earnings sentiment and valuations that have started to look frothy for mega cap Growth on some metrics.
• Third, stock market optimism improved in the latest Conference Board survey, a bright spot in the consumer narrative and a data point that alleviates some of our near-term pullback concerns.

Welcome to RBC’s Markets in Motion podcast, recorded June 1, 2026. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.

Three big things you need to know: First, earnings sentiment (the rate of upward EPS estimate revisions) is now improving broadly within the equity market, which we think opens the door for a short-term pause in mega cap Growth leadership within the US and US leadership within global developed markets equities. Second, the Growth/Value trade within Large Cap has turned choppy again, which we think may reflect the broadening out of improving earnings sentiment and valuations that have started to look frothy for mega cap Growth on some metrics. Third, stock market optimism improved in the latest Conference Board survey, a bright spot in the consumer narrative and a data point that alleviates some of our near-term pullback concerns.

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Now, back to regular programming.

Takeaway #1: Earnings Sentiment Is Improving Broadly, Opening The Door For A Short-term Pause In Mega Cap Growth And US Leadership.

• The rate of upward EPS estimate revisions has been climbing for the S&P 500 and its top-10 market cap names, but as reporting season came to an end, we’ve also been seeing a big pick up for the rest of the S&P 500 and Small Caps on this stat as well.

• We’re also seeing positive revisions to consensus forecasts for both EPS and revenues for all of the sectors in the S&P 500 and most Small Cap sectors.

• This stat is getting close to past highs for the top-10 S&P 500 market cap names, but still has room to run for the rest of the index.

• Additionally, while the US still looks better than other developed markets on the rate of upward earnings revisions in terms of level and trend, some competition may be starting to emerge from Europe where the rate of upward EPS estimate revisions has been quietly on the rise and is now back in positive territory.

• We continue to like Growth over Value and the US over non-US on a longer-term 12-month view, but in the very short term what we’re seeing here may be supportive of a pause in big cap Growth and US leadership trade.

Takeaway #2: Valuations are also pointing to the possibility of a pause in mega cap growth leadership.

• The top-10 market cap names in the S&P 500 are starting to approach previous highs again on a median NTM P/E multiple, while valuations for the rest of the S&P 500 have been compressing and are close to long-term average levels.

• As a result, the relative NTM P/E between these two baskets has spiked, while the relative long-term EPS growth forecast hasn’t seen a similar move up, which suggests that the relative P/E may need to compress.

• Note, we have seen the Growth/Value relative performance trade within Large Cap turn choppy recently, which may reflect the earnings revisions and valuation dynamics we’ve just discussed.

Takeaway #3: There’s a bright spot in the consumer narrative for the stock market.

• In the latest Conference Board consumer survey, optimism about where stock prices are headed improved but isn’t yet back to the high of late 2024.

• Given the greater importance of retail trading dynamics in today’s market, we see this as well as the broadening out of upward earnings revisions, as a constructive data point for the broader US equity market, which mitigates some of our near-term concerns about a pullback due to rising interest rates and Fed hikes starting to get baked in.

That’s all for now. Thanks for listening. And please, don’t forget to vote!