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Market Perspectives

Rain or Shine

August 2025

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TRANSCRIPT

A quick update this month and then we’ll get you back into the summer swing.

No material changes from what we discussed at the midyear Market Perspectives last month, but let’s check in on the markets, which continue to move higher.

US Equity Market Performance by Quarter

Sources: Bloomberg, CNR. As of 7/25/2025. Global Equities – MSCI All Country World Index. US Large Cap – S&P 500 Index. US Mid Cap – S&P 400 Index. US Small Cap – S&P 600 Index. Past performance is no guarantee of future results.

Chart 1, 0:34— We are about halfway through the third quarter, and so far the third quarter is shaping up more like the second than the first. US stocks across the board—large, mid and small—decline in the first quarter, bounce back in the second, and are up more than 3%, respectively, in the third quarter. The numbers in the bottom left of the chart are through July 25, and since then large and small are up from that date, while mid-cap is flat to slightly down. The S&P 500 is up almost 10%, reaching new record highs seemingly each week. And as we noted prior, the move from the April lows has been impressive.

International indices still have a year-to-date advantage, driven by the strong relative returns at the beginning of the year. Since April, however, returns have been far more evenly distributed, and here in the third quarter, it’s been a familiar story. U.S. large caps, particularly the Magnificent Seven, are leading the way. And while valuations in the U.S. remain high, European valuations are higher when the currency impact is removed, and we’re currently in earnings season, sifting through the second quarter reports.

Q2 2025 Earnings Picture

Source: Bloomberg, City National Rochdale (CNR). As of 7/30/2025.
Information is subject to change and is not a guarantee of future results.

Chart 2, 1:38— So far the results are better than expected. There have been concerns that the tariff impact could upend what had been a robust run of earnings growth, and results have been mixed but positive. With roughly half of the S&P 500 companies reported, second quarter earnings were good, albeit not on pace with the first quarter’s strong results. Communication services, information technology and financials are leading the way with materials and the two consumer sectors lagging. As you can see at the bottom, earnings per share growth estimates remain in low double digits, which is one reason we are still optimistic about the long-term U.S. stock returns going forward, even at these valuation levels.

City National Rochdale Equity Sector Views

Overweight (+)

Information Technology

Demand surge for generative AI
Cross-sector integration
Data center build-outs and capex spending

Consumer Staples

Resilient to economic uncertainty
Defensive to slowing growth

Energy

Cheap valuations
Healthy energy demand despite OPEC+ supply
Responds to rising inflation expectations

Underweight (+)

Utilities

Sensitive to expensive valuations
Rate sensitive: steepening yield curve and higher inflation expectations

Financials

Lower net interest margins as rates decrease
Less investment and consumer borrowing as growth slows
Expectation for widening credit spreads

Chart 3, 2:22— Given where we’ve seen recent strength combined with relative valuations and fundamentals, City National Rochdale is focusing on the sector allocations as depicted here. Exposure to some more defensive sectors assist in keeping overall portfolio risk levels within an acceptable range, somewhat offsetting the allocations to higher beta areas like information technology.

Summer has been good to us, but managing portfolio risk is necessary given that the S&P 500 has been reaching new highs.

Valuations are high, about two thirds of stocks are above their 200-day moving average, and the threat of tariff impact to margins and consumer spending remains. Investors should be prepared for volatility and some consolidation like we’ve seen in the past few days. After all, it can’t be sunny every day, even in summer.

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 Bloomberg US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index. STRIPS are excluded from the index because their inclusion would result in double-counting.

MSCI All Country World Index (ACWI):The MSCI All Country World Index (ACWI) is a stock index designed to track broad global equity-market performance.

The Standard & 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 US equity performance.

S&P 400 TR (28 June 1991 base) Standard and Poor's Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. This index represents the Total return version of MID.

The Standard & Poor's Smallcap 600 Index is a capitalization-weighted index that measures the performance of selected U.S. stocks with a small market capitalization. The index was developed with a base value of 100 as of December31, 1993.