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Market Perspectives

Graduating to the Next Stage

June 2025

Filename: Market Perspectives JUNE 2025.pdf
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TRANSCRIPT

As we slide into summer, we are still wrestling with uncertainties surrounding tariffs, geopolitics, domestic politics, et cetera. But there is less uncertainty now, and the equity markets, importantly, appear to be responding more calmly to daily news events, specifically to tariff news.

After a volatile first four months of the year, I, for one, embrace the relative calmness.

The S&P 500’s quarter-to-date return is above 7% as of filming, pushing the year-to-date return a little above 3% — a nice improvement from the dark days of April.

This month, let's focus on fiscal policy and corporate profit growth updates. The expectations for a sweeping pro-growth agenda have not materialized. Efforts by the administration have been underwhelming, and announced policies, including the new tax bill, are not meaningful for business stimulus. The reconciliation bill still needs to pass the Senate and, as written currently, it may provide a small boost to the economy.

The focus is on extending expiring tax cuts currently in place with no changes to the personal income tax brackets. Included corporate provisions may support company earnings and cash flows, but benefits experienced would be reduced in the subsequent years and possibly even offset by other included policies.

Equity Risk/Reward Conditions Appear Modestly Positive

Sources: FactSet, CNR Research, as of May 2025.
Indices are unmanaged, and one cannot invest directly in an index. Information is subject to change and is not a guarantee of future results.

Chart (s) 1, 1:39— Switching to earnings — apologies for the busy page. I know I'm breaking a cardinal rule of presentations: “Don't blind the audience with data.” So, focus on the top line in bold, the S&P 500 — the other lines are simply the sector results that ultimately add up to the top line.

Almost three of four companies reporting beat estimates, with companies nearly doubling pre-season earnings expectations. But let's remember corporate earnings expectations had been revised down somewhat considerably, as noted by the 6.59% figure under the column of projection.

Recall, estimates were in the low double digits earlier this year. So, earnings came in close to the former estimates. Could this mean the downward revision was uncalled for? Or have policy uncertainties not yet manifested in company earnings?

Looking forward, it is likely prudent to assume the latter. Why? Well, one, margin pressure from tariffs. Input costs are rising due to tariffs and supply chain adjustments. And while pricing power remains in some sectors, many firms are absorbing added cost.

Two, guidance is trending cautious. Previews ahead of the earnings season suggested management teams were preparing markets for softer results, and we expect that to continue, and further revisions will come about during earnings calls.

Three, weakness is not sector specific. The profit outlook has deteriorated across industries, not just in tariff-sensitive areas. This reflects broader cost and demand pressures.

Global Markets Have Underperformed U.S.

Source: Bloomberg, as of May 31, 2025. Past performance is not a guarantee of future results.
Indexes used: The Standard & Poor’s 500 Index (S&P 500) , MSCI EAFE Index, MSCI Emerging Markets (EM) Index , The MSCI All Country World Index (ACWI).

Chart(s) 2, 3:19— That said, we remain modestly positive. Earnings growth forecasts, while lowered, are still decent, as seen in the upper left hand chart. Further, if you shift your eyes to the upper right chart, you'll see that valuations are reasonable outside of these seven tech titans, but you've heard that story before.

To sum up, equity positioning remained steady as tariff-related headwinds led us to drop growth in earnings expectations. We continue to emphasize value discipline within U.S. markets. Our focus remains on U.S. domestic equities, where the fundamentals are still comparatively stronger. International allocations remain in flux, and we are actively evaluating regional exposures as trade dynamics evolve. Volatility may persist given uncertainty around policy direction, but we see opportunities in markets.

Patience and selectivity, as always, are key.

Important Information

The views expressed represent the opinions of City National Rochdale, LLC (CNR) which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness.

While CNR believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management's view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.

Past performance or performance based upon assumptions is no guarantee of future results.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market.

Equity investing strategies & products. There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Fixed Income investing strategies & products. There are inherent risks with fixed income investing. These risks include, but are not limited to, interest rate, call, credit, market, inflation, government policy, liquidity or junk bond risks. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed income securities and during periods when prevailing interest rates are low or negative.

City National Rochdale, LLC is an SEC-registered investment adviser and wholly-owned subsidiary of City National Bank. Registration as an investment adviser does not imply any level of skill or expertise. City National Bank is a subsidiary of the Royal Bank of Canada.

Index Definitions

The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

FactSet is a financial data and software company that provides computer-based financial data and analysis for professionals in the finance industry, including investment managers, hedge funds, and investment bankers. It consolidates data on global markets, public and private companies, and equity and fixed-income portfolios.

The Bloomberg Barclays US Corporate High Yield Index is an unmanaged, U.S.-dollar-denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.

The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index that is designed to measure developed equity market results, excluding the US and Canada.

MSCI Emerging Markets (EM) Index The MSCI Emerging Markets Index captures large and mid cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Europe Index captures large and mid cap representation across Developed Markets (DM) countries in Europe. The index covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.

The MSCI All Country World Index (ACWI) is a global stock index that encompasses nearly 3,000 companies from 23 developed countries and 25 emerging markets.

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