RBC Flags Midterm-Year Volatility Playbook as Autumn Choppiness Looms

The analysis, framed explicitly as a tail-risk playbook rather than a forecast for similar turbulence this year, points to a repeating seasonal pattern in the two most recent midterm election years. In both 2018 and 2022, the second half was volatile, with the S&P 500 peaking in early autumn, troughing in October, rebounding into November and then weakening again in December.

Sector behavior during those swings was consistent. Defensive groups—Consumer Staples and Health Care—outperformed during the drawdowns, while Technology and Consumer Discretionary lagged. When the market rebounded, Financials, Industrials and Materials led the way, according to the RBC note.

Separately, the report notes that high price momentum has started to outperform again while earnings quality has weakened. Corporate commentary remains mixed, with geopolitical risk, inflation, supply-chain issues and weak housing turnover cited as headwinds, offset by strength in artificial intelligence, energy, manufacturing and reshoring.

Consumers are still showing caution and value-seeking behavior, with weakness in big-ticket spending, while tariff refunds are largely viewed as one-off benefits. The report also downplays valuation concerns: forward price-to-earnings ratios for the S&P 500, Nasdaq 100 and the largest stocks sit around the middle of their post-COVID ranges, and Russell 2000 valuations are near average.

The historical pattern suggests that if markets do turn choppy this autumn, investors may favor defensives during drawdowns and shift into cyclical and value sectors during rebounds. The report does not predict such turbulence will occur, instead offering a framework for how sectors have behaved in similar periods.

RBC also flagged that increased hedging flows could lift the VIX later, contrasting with today's low volatility environment. That observation, along with the historical sector rotation data, provides a reference point for positioning should the midterm-year pattern repeat.