RBC Capital's head of U.S. equity strategy highlighted the key aspects they have noticed from their high-frequency indicators in a note Monday.
Firstly, the firm said one of its key sentiment indicators has started to retreat after hitting extreme levels, which has coincided with a stealth rotation in leadership.
RBC explained it had seen a sharp move lower on CFTC's US equity futures positioning gauge. "This was driven by a drop in positioning in Nasdaq 100 futures, which had been sitting well above historical highs," they wrote.
Second, they're starting to see a more broad-based improvement in US GDP expectations, which RBC sees as supportive of continued rotation in stock market leadership.
"We are seeing evidence that the forecasting community has become a little more willing to stick their necks out, as GDP forecasts are now rising for 1Q24, 2Q24, and 3Q24," said RBC. "We have been arguing over the past few months that for the rotation in stock market leadership seen in November and December to resume, US GDP forecasts would need to keep improving and get closer to above-average levels. While we aren't there yet, we've gotten a lot closer."
Finally, the firm noted that Biden put out his wish list in Thursday's State of the Union, giving equity investors a taste of his goals in a potential 2nd term.
RBC still thinks it's too early to make big trades on the US election outcome but feels there were more policy "bread crumbs" in Thursday's State of the Union than we expected to get.
"Things that stood out to us from a stock market/economic perspective included the emphasis on his foreign policy, immigration and the desire to pass the border bill, individually focused economic initiatives on housing and preschool, and the desire for corporations and billionaires to pay more in taxes but not those making under $400k," said the firm.