WEBVTT - Lori Calvasina Talks Recession Pricing, S&P 0:00:02.520 --> 0:00:09.200 Bloomberg Audio Studios, podcasts, radio news. The market is lower 0:00:09.240 --> 0:00:13.280 than the futures at nine twenty nine, the Vix, Paul, please, 0:00:13.440 --> 0:00:16.079 I can't do it, Paul, quote the Vix, it's too 0:00:16.160 --> 0:00:16.680 much pain. 0:00:16.800 --> 0:00:19.400 Well, I'm just ninety s and P five technically got 0:00:19.480 --> 0:00:22.040 bear market right there at that low here, but we've 0:00:22.040 --> 0:00:25.720 got the vics here fifty how about that Tom five zero. 0:00:25.680 --> 0:00:28.120 Five zero point sixty four. And I did a standard 0:00:28.120 --> 0:00:31.600 deviation study. Lauri Kelvicina said she wouldn't come on if 0:00:31.640 --> 0:00:33.920 I didn't do bear market bull market calls. I gotta 0:00:33.960 --> 0:00:37.200 do standard deviation calls. And we're out at three point 0:00:37.240 --> 0:00:41.880 three standard deviations down, standard imports five hundred, one step down, 0:00:41.920 --> 0:00:45.279 two steps down, and this morning, three steps down. We 0:00:45.320 --> 0:00:48.159 are honored the Lori Kelvicina would join us here in 0:00:48.159 --> 0:00:51.400 this hour, Lord, your observation as you speak to your 0:00:51.400 --> 0:00:52.400 clients this morning. 0:00:53.360 --> 0:00:55.720 Look, I think people are trying to make sense of 0:00:55.760 --> 0:00:59.120 what's going on. How far we could go down? You know, 0:00:59.240 --> 0:01:01.560 just a few minutes to go, I had an email 0:01:01.680 --> 0:01:03.600 with someone who was talking to me about my four 0:01:03.640 --> 0:01:05.760 Tiers of Fear framework, and so there's a lot of 0:01:05.800 --> 0:01:08.520 sympathy among my clients for your thirty one hundred, which 0:01:08.520 --> 0:01:11.640 is the fourth tier where you have a major crisis 0:01:11.640 --> 0:01:13.280 and lose half the market value. I'm not going to 0:01:13.280 --> 0:01:15.039 sit here, Tom and tell you everybody saying that, but 0:01:15.080 --> 0:01:18.160 that was one email that came across, whereas other people 0:01:18.200 --> 0:01:20.200 have sort of resonated to the idea that we said, 0:01:20.240 --> 0:01:21.640 you know, we've been in a growth scare. Of the 0:01:21.760 --> 0:01:25.320 risk now is we're pricing in recession. And it sounds 0:01:25.360 --> 0:01:27.160 to me like just based on where we open, we're 0:01:27.200 --> 0:01:30.480 headed straight for that. So I think that people are 0:01:30.600 --> 0:01:33.280 doing what we do when we have these events in 0:01:33.360 --> 0:01:37.319 markets where there is a fear that is cascading very rapidly. 0:01:37.480 --> 0:01:39.120 What we're going to do here now with an equity 0:01:39.200 --> 0:01:43.600 strategist is take all over wonderful abilities, particularly with less 0:01:43.640 --> 0:01:48.120 profitable non Apple, non Microsoft companies, and bring it over 0:01:48.160 --> 0:01:51.680 to what people are talking about with the DOWBT negative 0:01:51.720 --> 0:01:56.920 fourteen hundred. Laurie Calvicina, take the equity market and what 0:01:57.000 --> 0:02:01.520 it will bounce off in a credit mark. The deteriorates. 0:02:01.920 --> 0:02:06.800 The jargon that Paul Sweeney uses is spreads deteriorate. That's 0:02:06.840 --> 0:02:10.200 the yield of a garbage bond versus a full faith 0:02:10.240 --> 0:02:13.320 in credit and the yield goes higher. Are we to 0:02:13.480 --> 0:02:18.800 tipping point in credit that affects the equity market. 0:02:20.240 --> 0:02:22.120 It's a great question. I'm certainly not an expert on 0:02:22.160 --> 0:02:24.919 the credit market, tom, so I'm gonna deflect on that one. 0:02:25.200 --> 0:02:27.799 But what I will say is that, you know, maybe 0:02:27.880 --> 0:02:30.359 up until about a week ago, and it was a 0:02:30.400 --> 0:02:32.799 little bit before the Rose Garden ceremony, to be honest, 0:02:32.800 --> 0:02:35.320 but we had actually been seeing small caps starting to 0:02:35.320 --> 0:02:37.600 outperform large caps, and like on the big down days 0:02:37.600 --> 0:02:39.600 in the market, small caps weren't doing quite as bad, 0:02:39.960 --> 0:02:42.000 and I thought that was interesting. That was making me 0:02:42.040 --> 0:02:44.160 feel a little bit better because they had already been 0:02:44.240 --> 0:02:47.440 so de risk, they were so cheap, and we felt 0:02:47.480 --> 0:02:49.480 like there was this rotation going on that was hitting 0:02:49.520 --> 0:02:51.520 the bigger caps harder than the small caps. But that's 0:02:51.560 --> 0:02:54.200 all changed. So we've seen that attempt that small caps 0:02:54.200 --> 0:02:56.880 were making to bottom now fail posts the Rose Garden, 0:02:57.240 --> 0:03:00.320 and that's going to be very you know, similar right 0:03:00.360 --> 0:03:03.600 to that high high yield cohort of the market. And 0:03:03.720 --> 0:03:06.120 what that's been telling me over the past few days 0:03:06.480 --> 0:03:09.400 is that those recession risks are getting priced in rapidly 0:03:09.440 --> 0:03:12.920 because as cheap as they are. And honestly, tom My 0:03:13.000 --> 0:03:16.639 valuation pe for the My valuation model, the market cap 0:03:16.639 --> 0:03:18.239 way to pe for the Russell two thousand, was it 0:03:18.320 --> 0:03:20.560 thirteen and a half times on the Thursday close In 0:03:20.720 --> 0:03:23.240 recession it tends to go to eleven to thirteen times, 0:03:23.280 --> 0:03:26.240 even before you clean up the excess earning's optimism. So 0:03:26.280 --> 0:03:29.080 these things have been acting pretty pretty bad. But I 0:03:29.120 --> 0:03:33.480 do think that credit markets holding off, not deteriorating, you know, 0:03:33.600 --> 0:03:35.440 that's been sort of the thing that's kind of kept 0:03:35.480 --> 0:03:37.320 people out. And I hate to use the word panic 0:03:37.360 --> 0:03:38.960 in markets like these, but that's been kind of the 0:03:39.000 --> 0:03:41.320 thing that's kept people calm. But they can't be a 0:03:41.360 --> 0:03:43.720 necessary part of the bonding process we have to go 0:03:43.800 --> 0:03:44.320 through in here. 0:03:44.520 --> 0:03:47.360 Let me uncom you right now, Paul the Vicks fifty 0:03:47.440 --> 0:03:48.640 two point zero. 0:03:48.520 --> 0:03:53.120 Seven exactly, Laurie, what's the earnings risk still out there 0:03:53.120 --> 0:03:54.640 in the marketplace do you think? I mean, is it 0:03:54.680 --> 0:03:57.880 a flat earnings year in twenty five or maybe something 0:03:57.880 --> 0:03:58.280 more than that. 0:03:59.280 --> 0:04:01.800 You know, what we've got modeled is is you know, 0:04:01.920 --> 0:04:05.280 kind of a stagflationary scenario right now for two fifty eight, 0:04:05.280 --> 0:04:07.560 which is well below the bottom up consensus which last 0:04:07.600 --> 0:04:09.520 I checked was two sixty nine. Who knows what it 0:04:09.560 --> 0:04:11.840 is now because things are starting to change. But what 0:04:11.960 --> 0:04:14.120 we have found is an interesting question you asked Paul, 0:04:14.200 --> 0:04:16.400 because if you kind of go back and look at 0:04:16.560 --> 0:04:20.200 bad earnings years, what we often find is that, you know, 0:04:20.440 --> 0:04:23.240 in kind of big crises, big recessions, you're seeing earnings 0:04:23.279 --> 0:04:25.280 year Earnie's growth on a year over year basis going 0:04:25.320 --> 0:04:28.440 down like thirteen percent or something worse. Right, So some big, 0:04:28.520 --> 0:04:31.240 ugly numbers, but they're actually a lot of years where 0:04:31.279 --> 0:04:33.920 earnings are just flat year to year, and when we 0:04:34.279 --> 0:04:36.880 see companies, you know, sort of being able to muddle through, 0:04:36.960 --> 0:04:39.960 that's often what's happened. So we when we recently changed 0:04:39.960 --> 0:04:41.880 our Arni's number to two fifty eight, we said, you know, 0:04:42.000 --> 0:04:44.480 kind of the downside scenario, if we want to kind 0:04:44.480 --> 0:04:46.800 of put in a barricase, We're thinking a lot about 0:04:46.839 --> 0:04:48.760 kind of that two forty six number for now. That 0:04:48.800 --> 0:04:50.800 could change if we go into a full on recession. 0:04:51.080 --> 0:04:54.120 But outside of that, that's not a bad assumption to make, 0:04:54.200 --> 0:04:55.360 just that earnings go nowhere. 0:04:55.520 --> 0:04:58.000 Laurie's staying with us. We're going to continue Lori Kelevisina 0:04:58.200 --> 0:05:00.520 wec with this yere on the equity market. Eric belt 0:05:00.560 --> 0:05:03.159 Chuonis made it up from Philadelphia. They didn't cut the 0:05:03.160 --> 0:05:06.200 funding on the A Cell Express. Get the bell chunis 0:05:06.240 --> 0:05:09.000 here in a moment. I just had a negative fifteen 0:05:09.040 --> 0:05:11.839 hundred print on the Dow, negative two thirteen. I want 0:05:11.839 --> 0:05:16.080 to emphasize futures at eight. At nine twenty nine, we're 0:05:16.120 --> 0:05:19.520 about negative one forty. We're now negative two ten on 0:05:19.560 --> 0:05:22.880 the equity market. The vics explodes out. That's the right word. 0:05:23.360 --> 0:05:27.120 Forty seven forty eight out to fifty two point seventy six. 0:05:27.400 --> 0:05:29.799 I never used this phrase. I'm going to use it, Paul. 0:05:30.279 --> 0:05:33.800 On a half hour to half hour basis to the 0:05:34.080 --> 0:05:39.719 Asia opening. We're sort of in uncharted territory. It's different 0:05:40.120 --> 0:05:44.400 in Paul. The yields go up. There's a fear trade 0:05:44.640 --> 0:05:49.680 into bond's price. Excuse me, priced down, yield up, and 0:05:49.800 --> 0:05:53.080 the whole margin call. I'm sorry, I'm going where Dennis 0:05:53.120 --> 0:05:56.720 Gartman was earlier this morning. You wonder, Paul, what's going 0:05:56.760 --> 0:05:57.400 on out there? 0:05:57.920 --> 0:06:02.160 Of course, and I think I was just asking where 0:06:02.160 --> 0:06:04.160 do we go from here? In terms of policy? I'm 0:06:04.200 --> 0:06:06.640 not sure anybody really knows. And that kind of goes 0:06:06.640 --> 0:06:08.800 to the earnings question, like, I don't know how bad 0:06:08.839 --> 0:06:11.080 earnings could get because I'm not sure how far this 0:06:11.160 --> 0:06:13.120 policy is going to go. And I think that reflects 0:06:13.279 --> 0:06:16.160 a lot of what the market's doing. So, Laurie, I 0:06:16.200 --> 0:06:19.840 think most of us listening watching here would say, you 0:06:19.880 --> 0:06:22.479 know what, twelve twenty four to thirty six months from now, 0:06:22.760 --> 0:06:24.400 this market's going to be higher than where we are 0:06:24.480 --> 0:06:28.359 right here, probably meaningfully higher. So I should probably be 0:06:28.800 --> 0:06:31.839 doing some buying here. How does that conversation do with you? 0:06:33.480 --> 0:06:35.200 Well, look, look, I'll tell you it's sort of the 0:06:35.200 --> 0:06:37.400 fly and the ointment for the strategists right now. And 0:06:37.920 --> 0:06:40.039 I see this in my own modeling, Paul. We have 0:06:40.120 --> 0:06:41.880 five different models that we used to come up with 0:06:41.880 --> 0:06:44.039 our price targets. And look, I know everything is scary 0:06:44.040 --> 0:06:46.080 if people are like math, Oh my god, you're doing math, 0:06:46.480 --> 0:06:48.480 But that's what we have to do right to keep 0:06:48.480 --> 0:06:50.400 ourselves grounded. And when I go through and look at 0:06:50.400 --> 0:06:53.760 my modeling, the one model that's still pretty constructive is 0:06:53.800 --> 0:06:57.000 actually the sentiment model, and it's basically looking at aaii 0:06:57.120 --> 0:07:00.640 net bulls that are down around GFC lows twenty two lows, 0:07:01.080 --> 0:07:04.120 nineteen ninety one recession lows, and that is a good 0:07:04.200 --> 0:07:08.359 reminder that as quickly as things cascade onto the downside, 0:07:08.760 --> 0:07:10.960 they come, they tend to come roaring back when you 0:07:11.000 --> 0:07:14.720 get some resolution, And so I think that's you know that, 0:07:14.720 --> 0:07:16.960 that's something a lot of you know, us forecasters, we 0:07:17.040 --> 0:07:18.880 had in the back of our heads as we've tried 0:07:18.880 --> 0:07:20.040 to navigate this environment. 0:07:20.040 --> 0:07:20.520 It's hard. 0:07:20.720 --> 0:07:23.320 So that's impossible, right to say, what is that trigger? 0:07:24.080 --> 0:07:25.800 But it is something we have to watch, and it's 0:07:25.840 --> 0:07:28.080 a necessary condition for a bottom that's already been put 0:07:28.120 --> 0:07:28.520 in place. 0:07:28.760 --> 0:07:31.560 Tesla not to a two hundred and ninety nine. We're 0:07:31.600 --> 0:07:33.160 not there yet. I don't want to be too gloomy, 0:07:33.440 --> 0:07:35.320 but I'm going to go over here, Laurie to something 0:07:35.400 --> 0:07:37.760 nobody talks about. And of course we're on a Canadian 0:07:37.800 --> 0:07:43.280 border on this Ford Motor under ten dollars nine dollars 0:07:43.320 --> 0:07:47.440 eleven cents right down on lows for twenty twenty five, 0:07:48.120 --> 0:07:52.000 and they got a pe multiple on Ford of five 0:07:52.960 --> 0:07:55.520 and maybe the forward multiple, which we're going to blow up. 0:07:55.520 --> 0:08:00.000 We know that is seven. Are we in value territory 0:08:00.440 --> 0:08:04.240 medium and small cap stocks like we clearly are with 0:08:04.320 --> 0:08:06.440 the Ford Motor Company. 0:08:06.800 --> 0:08:08.600 So you know, I was having an argument with someone 0:08:08.680 --> 0:08:12.520 about that this morning, talking about not my husband. I'm 0:08:12.680 --> 0:08:14.440 I'm on a trip, I'm in a hotel room. So 0:08:14.480 --> 0:08:15.480 I believe that he ardues with. 0:08:15.480 --> 0:08:17.720 The marriage survives. 0:08:18.760 --> 0:08:21.000 Yeah, but not. He's very scared of my tears of 0:08:21.040 --> 0:08:23.240 fear chart. I had to take some passwords away from him. 0:08:23.280 --> 0:08:26.880 But the reality is is that you know, when I 0:08:26.960 --> 0:08:29.360 highlight this small cap chart and that we're at thirteen times, 0:08:29.400 --> 0:08:31.440 or at least we were as a Thursday, people say, well, 0:08:31.440 --> 0:08:33.640 we have to adjust the earnings, and I say, I know, 0:08:33.720 --> 0:08:35.920 we have to adjust the earnings. That's the separate thing 0:08:36.040 --> 0:08:38.880 though if you look at you know, sort of historically 0:08:38.920 --> 0:08:42.440 my forward pe data, eleven to thirteen times is where 0:08:42.440 --> 0:08:44.679 small caps tend to bottom out even when the E 0:08:44.840 --> 0:08:47.120 is too high, and people just can't mentally wrap their 0:08:47.120 --> 0:08:49.840 heads around that. But it is something important you have 0:08:49.920 --> 0:08:51.680 to keep in mind because it's one of those things 0:08:51.679 --> 0:08:53.319 again that you have to see. It's not going to 0:08:53.400 --> 0:08:56.000 peg a bottom on its own, but it's still a 0:08:56.040 --> 0:08:59.040 signal even though there's some problems with the E. Now, 0:08:59.360 --> 0:09:01.680 I do think with earnings, we have to get the 0:09:01.760 --> 0:09:04.840 numbers down before anybody is going to have faith to 0:09:04.920 --> 0:09:07.400 come in and buy here. Forty percent of the revisions 0:09:07.720 --> 0:09:09.800 and the rote, the Russell and SMP are still to 0:09:09.840 --> 0:09:12.679 the upside. Nobody's cutting numbers because they don't you know 0:09:12.679 --> 0:09:14.480 they I don't know a lot of different reasons, but 0:09:14.520 --> 0:09:15.800 nobody's been cutting the numbers. 0:09:15.880 --> 0:09:17.679 You're a trooper to come on. Lori back to her 0:09:17.720 --> 0:09:22.280 clients at RBC Capital, Marcus Lori, Kelvisenior. Hug the children 0:09:22.360 --> 0:09:23.320 is all I can say.