Investing.com — The weakness seen during January 2025 is not unusual and reflects similar patterns seen in 2024, 2022 and 2020, according to RBC Capital Markets.
Investor sentiment also dipped, with net bulls in the AAII weekly survey falling to 2.9% in the four-week average from January 9, 2025 and to -2.7% in weekly unadjusted data.
RBC strategists suggest sentiment could continue to deteriorate, potentially reaching levels seen in the fall of 2023 when net growth bottomed out about one standard deviation below the long-term average.
“While painful for the stock in the short term, this improves the long-term setup,” the Lori Calvasin-led team said in a report on Monday.
Consumer sentiment is rebounding from 2022 lows, according to data from the University of Michigan, but last week’s preliminary reading for January was slightly below expectations.
Strategists believe that helps explain some of the stock market’s weakness, noting that the S&P 500’s performance has closely tracked trends in the Michigan Consumer Sentiment Index since the start of COVID.
They also noted that the price action of the S&P 500 exceeded the trends suggested by the sentiment index, signaling that the market may have been due for a short-term pullback.
Questions about the concentration of S&P 500 market capitalization in the largest names also arose in early 2025. RBC analyzed the top five and top ten companies by market capitalization, examining how their share of the S&P 500 in terms of market capitalization and net income has evolved over time.
While market capitalization concentration slightly exceeds net income concentration, both are on the rise. Strategists point out that this is different from the late 1990s that led to the Tech Bubble when the concentration of market capitalization increased without a corresponding increase in the concentration of net income.
As for fund flows, the investment bank notes that while inflows into U.S. equity funds remain below last year’s highs and small-cap funds still have weak overall flows, inflows “appear to exist for U.S. large-cap and U.S. small-cap funds actively managed strategies.”
