Welcome, to RBC’s Markets in Motion podcast, recorded September 8th, 2025. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.

The big things you need to know: First, we see Friday’s weaker-than-expected jobs report as having added some additional uncertainty to the US equity market outlook at a time when we’ve been on guard for choppiness for other reasons. Second, we reiterate our overweight stance on the S&P 500 Materials sector. Third, other things that jump out to us include the weakness in bitcoin and the deterioration in US equity flows and retail flows specifically, which add to our near-term concerns.

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

Starting with Takeaway #1: Friday’s Jobs Report Adds to Uncertainty in the Outlook for US Equities

As we reviewed our weekly chart updates on Friday, we found that we had difficulty focusing on much else besides Friday’s jobs report, in which August non-farm payrolls came in well-below consensus at +22k, and June was revised down to a loss of -13k. Our colleagues in RBC Economics wisely noted in their recap that “slowing demand in conjunction with slowing supply … make interpreting the NFP reports more cumbersome and with less clear signal about the US economy.”

While the US equity market reaction was rather muted on Friday and was decidedly not sending a recession fear signal, the release nevertheless adds to our concern about choppy conditions in US equities emerging this fall. Our worries have centered on elevated valuations in the S&P 500 and Nasdaq 100 that are failing to break through the most recent previous peaks …

…the tendency of September and October to be tough months for S&P 500 performance over the past five years…

…and the sudden deterioration in AAII net bullishness without a big break in the stock market (something that has been reminiscent of early 1Q25).

We also observed as 2Q25 reporting season was wrapping up that S&P 500 company commentary on earnings calls has also kept us in the camp that the real test from tariffs from a US corporate profitability, inflation/cost pressure and demand perspective is coming up in 3Q/4Q. Post Labor Day, we also noted that uncertainty around trade policy remains elevated as the lawsuit over reciprocal tariffs makes its way up to the Supreme Court. We admittedly picked up a few bread crumbs in our transcript reading pointing to the idea that the labor backdrop has cooled, but for the most part the labor discussion in 2Q25 reporting season was light. That leaves us concerned that Friday’s jobs report may inject some fresh uncertainty about the labor market backdrop into a US equity market that’s been priced for perfection.

Moving on to Takeaway #2: We Remain Overweight Materials

The 2nd best-performing S&P 500 sector on Friday was Materials, a sector that we had upgraded in early July when we published our mid-year S&P 500 sector outlook update. Since early August, Materials has also outperformed the S&P 500 though it has not been at the top of the rankings. As we thumbed through our sector updates on Friday, we took note of both the better performance in August and generally favorable signals for the sector on our top-down strategy tools.

Most notably, funds flows have been positive for the Materials sector with an improving trend.

Valuations for the S&P 500 Materials sector also continue to look attractive in relative terms and in line with historical averages in absolute terms.

Earnings sentiment has been a bit weaker than what we’ve seen in other sectors, but revisions remain balanced between positive and negative revisions on both EPS and sales.

Moving on to Takeaway #3: a few other things in our updates are adding to our nervousness, though ISM new orders was a bright spot.

• The MOVE index, a gauge of bond market volatility, has edged up slightly in September, though it remains quite low vs. recent history.

• Bitcoin remains a bit below its mid-August highs even though the S&P 500 has crept up to a new one. This is concerning as bitcoin and S&P 500 performance have been aligned in recent years.

• Though ISM manufacturing only moved up modestly and remained rather weak, we did see the stronger improvement in new orders, which returned to positive territory, as a constructive data point for US equities worth noting. New orders have been a leading indicator for S&P 500 capex in the past. Given investor excitement over the OBBB and its bonus depreciation and R&D provisions, we’ve been keeping a close eye on this indicator since company commentary on these elements of the tax bill has been rather light.

• Flows to US equity funds have clawed their way back to positive territory, but are still quite weak relative to levels seen earlier in the year.

• When we zoom out, we think this is evidence of buyers’ fatigue. Geographically, flows to European and German equity funds have also been slightly negative. Digging in a little deeper, US and European flows for both US- and non-US domiciled equity funds have been weak, while Global ex US flows have been positive but with deteriorating trends.

• Importantly, within US equity funds retail flows have faltered recently. Specifically, passive flows for retail investors into US equity funds have turned slightly negative, reversing prior strength. Meanwhile, retail outflows from actively managed funds remained negative with a deteriorating trend.

• The deterioration in retail flows, sharp decline in net bulls in the AAII survey, and decline in bitcoin all cause us to question whether retail investors can be relied on to buy dips in the short term.

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