1 00:00:02,600 --> 00:00:07,000 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,480 --> 00:00:10,360 Speaker 2: We need some perspective on this market in a big way. 3 00:00:10,360 --> 00:00:12,879 Speaker 2: With some of those futures readings at least was just reporting. 4 00:00:12,880 --> 00:00:16,480 Speaker 2: And for that we go to the lawn in Charlottesville, Virginia, 5 00:00:16,600 --> 00:00:19,960 Speaker 2: Lori Calvacina ahead of US Equity Strategy, RBC Capital Markets. 6 00:00:19,960 --> 00:00:23,239 Speaker 2: If you know what that means. You know, Laurie, what 7 00:00:23,280 --> 00:00:25,520 Speaker 2: do you make of the last couple of trading days 8 00:00:25,520 --> 00:00:28,280 Speaker 2: here in the futures market here today? The market kind 9 00:00:28,280 --> 00:00:30,600 Speaker 2: of turned on a dime there on that job's number. 10 00:00:31,880 --> 00:00:34,000 Speaker 1: It did look. I think the biggest takeaway we have 11 00:00:34,120 --> 00:00:36,479 Speaker 1: right now is people like Tom Keane going on vacation. 12 00:00:36,560 --> 00:00:38,440 Speaker 1: I think everyone's going to be afraid to take vacation 13 00:00:38,520 --> 00:00:41,840 Speaker 1: in August now. But I think the reality is that 14 00:00:41,960 --> 00:00:44,760 Speaker 1: we have to take the last couple days in context. 15 00:00:44,760 --> 00:00:46,960 Speaker 1: And that's what we really tried to remind people of 16 00:00:47,040 --> 00:00:49,720 Speaker 1: in our Weekly this morning. We're not sitting here saying 17 00:00:49,880 --> 00:00:53,360 Speaker 1: recession fears didn't escalate, that there weren't some signals in 18 00:00:53,400 --> 00:00:56,040 Speaker 1: the jobs report, in the ism report on Thursday, But 19 00:00:56,080 --> 00:00:58,120 Speaker 1: we do think people need to bear in mind that 20 00:00:58,200 --> 00:01:00,200 Speaker 1: we had I think I came up with like six 21 00:01:00,240 --> 00:01:03,440 Speaker 1: or seven different reasons that market should be selling off 22 00:01:03,520 --> 00:01:07,120 Speaker 1: right now. This includes valuations that were full, a tendency 23 00:01:07,120 --> 00:01:10,000 Speaker 1: for the stock market to sell off after first rate cuts, 24 00:01:10,000 --> 00:01:12,679 Speaker 1: a curse, so maybe we're pulling that forward. We had 25 00:01:12,840 --> 00:01:17,920 Speaker 1: extremely elevated positioning on the CFTC data for US equity futures, 26 00:01:18,000 --> 00:01:22,720 Speaker 1: Nasdaq futures, SMP futures, AAII was sending us a sell signal. 27 00:01:22,760 --> 00:01:25,479 Speaker 1: The last couple of weeks. We've got the election, where 28 00:01:25,560 --> 00:01:28,800 Speaker 1: dynamics are shifting that typically produces a pullback in September, 29 00:01:28,880 --> 00:01:30,720 Speaker 1: and maybe we're pulling that up. And by the way, 30 00:01:30,760 --> 00:01:33,440 Speaker 1: markets have been correlated with Trump and now he's lagging 31 00:01:33,480 --> 00:01:37,200 Speaker 1: behind Harris. So there's a lot of stuff going on. 32 00:01:37,319 --> 00:01:40,479 Speaker 1: And by way, add the fact that seasonality the last 33 00:01:40,560 --> 00:01:43,760 Speaker 1: five years has been really really poor time to be 34 00:01:43,800 --> 00:01:46,640 Speaker 1: in the stock market August through October, I think, including 35 00:01:46,640 --> 00:01:49,520 Speaker 1: specifically twenty twenty two and twenty twenty three. So there 36 00:01:49,560 --> 00:01:52,120 Speaker 1: have been a lot of reasons this market has needed 37 00:01:52,160 --> 00:01:53,960 Speaker 1: to take a bit of a pullback in here. 38 00:01:54,440 --> 00:01:56,560 Speaker 3: So Laurie, it's Alex and I love reading all your 39 00:01:56,560 --> 00:01:58,640 Speaker 3: notes is like first must read on Monday. Got to 40 00:01:58,640 --> 00:02:01,480 Speaker 3: set you up right, when does though a healthy correction 41 00:02:01,560 --> 00:02:02,760 Speaker 3: become an unhealthy one. 42 00:02:04,480 --> 00:02:06,560 Speaker 1: So I think the biggest thing I'm worried about in here, 43 00:02:06,600 --> 00:02:08,959 Speaker 1: and I'm trying to tell everybody keep a calm head today, 44 00:02:09,080 --> 00:02:11,040 Speaker 1: Like I do think we need to dig into the 45 00:02:11,080 --> 00:02:14,280 Speaker 1: BLS report a bit more, you know, find out exactly 46 00:02:14,320 --> 00:02:17,160 Speaker 1: what the weather impact was there. But I do think 47 00:02:17,200 --> 00:02:20,040 Speaker 1: that the rule of thumb I always use is five 48 00:02:20,080 --> 00:02:22,359 Speaker 1: to ten percent is a typical correction if you look 49 00:02:22,400 --> 00:02:24,679 Speaker 1: from peak, So that would kind of take us down 50 00:02:24,720 --> 00:02:26,720 Speaker 1: to sort of the fifty one hundred marks. We'd have 51 00:02:26,800 --> 00:02:29,480 Speaker 1: to watch markets closely in here, if you look at 52 00:02:29,520 --> 00:02:32,160 Speaker 1: sort of the ten to twenty percent range, that's typically 53 00:02:32,240 --> 00:02:34,440 Speaker 1: you know, in the coast GFC world where the growth 54 00:02:34,480 --> 00:02:37,119 Speaker 1: scarers settle in. Now, twenty twenty two was a little 55 00:02:37,160 --> 00:02:40,080 Speaker 1: bit different. It wasn't a recession. We fell twenty five percent, 56 00:02:40,320 --> 00:02:43,320 Speaker 1: but generally anything more than twenty percent is an actual recession. 57 00:02:43,360 --> 00:02:46,240 Speaker 1: And I think one of the reasons why it's so jarring, 58 00:02:46,600 --> 00:02:49,280 Speaker 1: you know, kind of the move from Wednesday to Thursday Friday, 59 00:02:49,440 --> 00:02:51,400 Speaker 1: is that if you go back to corporate earnings and 60 00:02:51,400 --> 00:02:53,680 Speaker 1: equity investors, we've all had our heads stuck in these 61 00:02:53,680 --> 00:02:56,560 Speaker 1: corporate reports the last couple of weeks. What we're seeing 62 00:02:56,560 --> 00:02:59,240 Speaker 1: in that jobs data, it's not really syncing up with 63 00:02:59,280 --> 00:03:01,600 Speaker 1: what we're hearing companies right now. So I do think 64 00:03:01,680 --> 00:03:03,520 Speaker 1: we need to sort of take it one step at 65 00:03:03,520 --> 00:03:03,760 Speaker 1: a time. 66 00:03:03,800 --> 00:03:06,200 Speaker 2: In here, Llurie, what do you think the Federal Reserve 67 00:03:06,280 --> 00:03:08,519 Speaker 2: is going to do here? There were some discussion over 68 00:03:08,560 --> 00:03:12,079 Speaker 2: the weekend, maybe an emergency rate cut. What do you 69 00:03:12,080 --> 00:03:12,959 Speaker 2: think they're going to do here? 70 00:03:14,639 --> 00:03:16,480 Speaker 1: So I have no idea, you know, I think we 71 00:03:16,560 --> 00:03:18,840 Speaker 1: have to talk to the rates crop, We have to talk, 72 00:03:19,000 --> 00:03:20,720 Speaker 1: We have to talk to some of the reporters, but 73 00:03:20,760 --> 00:03:22,320 Speaker 1: the true that they don't and you know, I get 74 00:03:22,320 --> 00:03:25,480 Speaker 1: a little bit of frustrated with the fed guessing game 75 00:03:25,520 --> 00:03:27,800 Speaker 1: that people play on Wall Street all the time. I think, 76 00:03:27,960 --> 00:03:29,639 Speaker 1: you know, they're looking at data, they're trying to make 77 00:03:29,639 --> 00:03:31,880 Speaker 1: the best decisions that they can. But what I can 78 00:03:31,919 --> 00:03:33,639 Speaker 1: tell you is this question has come up a few 79 00:03:33,680 --> 00:03:37,360 Speaker 1: times since Friday, and even frankly since the CPI report. 80 00:03:38,080 --> 00:03:40,000 Speaker 1: That's when my rate strategist was telling me he was 81 00:03:40,040 --> 00:03:42,960 Speaker 1: first getting questions about fifty basis points. And you know, 82 00:03:42,960 --> 00:03:44,320 Speaker 1: I kind of went and dug up some of my 83 00:03:44,600 --> 00:03:47,560 Speaker 1: work from SVB looked through some of my files and 84 00:03:47,600 --> 00:03:49,920 Speaker 1: we found that in at least kind of my time 85 00:03:49,960 --> 00:03:52,400 Speaker 1: on Wall Street I started in two thousand, when you 86 00:03:52,480 --> 00:03:54,600 Speaker 1: either get sort of the big chunky cuts or you 87 00:03:54,600 --> 00:03:57,920 Speaker 1: get the emergency cuts. You know, generally they don't tend 88 00:03:57,920 --> 00:03:59,920 Speaker 1: to happen in isolation. They tend to happen in by 89 00:04:01,000 --> 00:04:03,400 Speaker 1: So I worry a little bit that if we get 90 00:04:03,440 --> 00:04:05,400 Speaker 1: some sort of emergency action, if we get some sort 91 00:04:05,440 --> 00:04:07,680 Speaker 1: of big chunky cut, it could further spook the market. 92 00:04:07,880 --> 00:04:10,000 Speaker 1: That's just my opinion, though there's certainly people out there 93 00:04:10,040 --> 00:04:11,240 Speaker 1: smarter on this than me. No. 94 00:04:11,320 --> 00:04:13,160 Speaker 3: I mean, it's a fair point, and there are a 95 00:04:13,160 --> 00:04:14,840 Speaker 3: lot of people out there who are trade equities who 96 00:04:14,880 --> 00:04:17,920 Speaker 3: are in kind of your boat, right, So right, based 97 00:04:17,960 --> 00:04:20,680 Speaker 3: on all of that, when and where do you buy 98 00:04:20,680 --> 00:04:21,040 Speaker 3: the dip? 99 00:04:22,640 --> 00:04:24,160 Speaker 1: So I think we've got to take it one day 100 00:04:24,200 --> 00:04:25,600 Speaker 1: at a time, you know, I want to see sort 101 00:04:25,600 --> 00:04:27,560 Speaker 1: of how the market reacts if we get down to 102 00:04:27,600 --> 00:04:30,560 Speaker 1: that ten percent threshold, you know, I think that's sort 103 00:04:30,560 --> 00:04:31,880 Speaker 1: of where we could look to see if there's a 104 00:04:31,920 --> 00:04:33,960 Speaker 1: line in the sand. The other thing that's come up 105 00:04:34,000 --> 00:04:35,719 Speaker 1: a bit this morning is just you know, sort of 106 00:04:35,720 --> 00:04:39,599 Speaker 1: looking at valuations, you know, we we've been very elevated. 107 00:04:39,720 --> 00:04:42,040 Speaker 1: For example, on those top ten names in the broader 108 00:04:42,080 --> 00:04:44,320 Speaker 1: market in SMP you've been traded. You got up to 109 00:04:44,360 --> 00:04:46,760 Speaker 1: thirty two times on medium PE. Actually it's now fallen 110 00:04:46,800 --> 00:04:48,880 Speaker 1: down as of last Wednesday to around twenty seven. Who 111 00:04:48,880 --> 00:04:51,680 Speaker 1: knows where it is today. Well, we'll see tomorrow. But 112 00:04:51,800 --> 00:04:53,279 Speaker 1: I do think you want to sort of watch for 113 00:04:53,360 --> 00:04:56,240 Speaker 1: some additional relief on those valuations. And I've noticed just 114 00:04:56,279 --> 00:04:58,359 Speaker 1: in my career a lot of times you don't have 115 00:04:58,360 --> 00:05:00,719 Speaker 1: to get super cheap on things for the leading to stop. 116 00:05:00,760 --> 00:05:03,039 Speaker 1: Sometimes you just need to go get back to average, 117 00:05:03,040 --> 00:05:06,400 Speaker 1: get a little bit below average. Small caps, for example, 118 00:05:06,400 --> 00:05:09,240 Speaker 1: it's the opposite phenomenon right now. They keep getting up 119 00:05:09,240 --> 00:05:11,680 Speaker 1: to average and then the trade sort of peters out. 120 00:05:11,800 --> 00:05:13,800 Speaker 1: So I think watching when we get back to average 121 00:05:13,880 --> 00:05:15,880 Speaker 1: valuations on certain things is going to be critical. 122 00:05:16,720 --> 00:05:19,400 Speaker 2: So, Laurie, I'm just looking at Nvidia here in pre 123 00:05:19,480 --> 00:05:21,720 Speaker 2: market trading. The level suggests a you know, a thirty 124 00:05:21,760 --> 00:05:23,719 Speaker 2: percent pullback from its recent high. 125 00:05:24,000 --> 00:05:24,320 Speaker 3: Wow. 126 00:05:24,720 --> 00:05:26,680 Speaker 2: I mean that's that gets your attention. I mean, if 127 00:05:26,680 --> 00:05:28,640 Speaker 2: you've told somebody you could buy, I'll give you Nvidia 128 00:05:28,680 --> 00:05:30,800 Speaker 2: a thirty percent discount to it's high if you said 129 00:05:30,800 --> 00:05:32,480 Speaker 2: that to them on Thursday, I think they grab it 130 00:05:32,600 --> 00:05:34,480 Speaker 2: both hands. What do you think about some of these 131 00:05:34,480 --> 00:05:37,279 Speaker 2: big tech names that have led the market higher in 132 00:05:37,320 --> 00:05:40,040 Speaker 2: which are now taking the big brunt So. 133 00:05:40,040 --> 00:05:42,560 Speaker 1: When I think about the basket as a whole, I 134 00:05:42,600 --> 00:05:45,440 Speaker 1: think that we've just we've sort of hit evaluation ceiling. 135 00:05:45,520 --> 00:05:46,880 Speaker 1: I mentioned, you know, we kind of got up to 136 00:05:46,920 --> 00:05:48,920 Speaker 1: thirty two times on those top ten names on a 137 00:05:48,960 --> 00:05:51,359 Speaker 1: media and PE when it's it's hit sort of you know, 138 00:05:51,400 --> 00:05:53,800 Speaker 1: the upper twenties thirty in the past, that's really been 139 00:05:53,839 --> 00:05:55,599 Speaker 1: the ceiling. So I think we kind of hit the 140 00:05:55,600 --> 00:05:58,200 Speaker 1: ceiling on valuations. If you look at the growth rates 141 00:05:58,240 --> 00:06:00,520 Speaker 1: on the MAG seven versus the rest of the market, 142 00:06:00,720 --> 00:06:03,880 Speaker 1: we've had a decelerating growth advantage, and so you know, 143 00:06:03,920 --> 00:06:07,560 Speaker 1: those MAG seven names have just ferocious earnings growth last year, 144 00:06:07,560 --> 00:06:10,040 Speaker 1: but it's expected to celerate both this year and next. 145 00:06:10,760 --> 00:06:14,240 Speaker 1: It's hard to sustain the premium valuations when you've got 146 00:06:14,279 --> 00:06:17,040 Speaker 1: a growth rate that's accelerating off peak, even if everything 147 00:06:17,120 --> 00:06:20,440 Speaker 1: is fine. So I do think the valuations are really 148 00:06:20,480 --> 00:06:22,080 Speaker 1: the key to the story here. We just need to 149 00:06:22,080 --> 00:06:23,200 Speaker 1: see some additional relief. 150 00:06:23,720 --> 00:06:27,200 Speaker 3: The vix has jumped an insane amount in two days. 151 00:06:27,839 --> 00:06:31,400 Speaker 3: The curve is super inverted at this point. What kind 152 00:06:31,440 --> 00:06:34,919 Speaker 3: of damage does a VIX that's moved the most in 153 00:06:35,040 --> 00:06:38,000 Speaker 3: thirty years due to the equity market. 154 00:06:39,240 --> 00:06:41,800 Speaker 1: So look, I think it's a question of where does 155 00:06:41,839 --> 00:06:45,159 Speaker 1: it settle out? You know, I actually called someone this morning. 156 00:06:45,200 --> 00:06:46,880 Speaker 1: I noted I got to the office pretty early and 157 00:06:46,920 --> 00:06:48,800 Speaker 1: it was around fifty and I called someone to say, 158 00:06:48,839 --> 00:06:51,000 Speaker 1: this is real, you know, you know, is actually the 159 00:06:51,040 --> 00:06:52,919 Speaker 1: real data point. So I'm glad you guys are reporting 160 00:06:52,960 --> 00:06:56,039 Speaker 1: it as well, but I think the reality is it 161 00:06:56,200 --> 00:06:58,719 Speaker 1: just tells me that we have a sentiment problem in 162 00:06:58,720 --> 00:07:01,240 Speaker 1: the market, that sentiment needs to unwind. I mean, if 163 00:07:01,240 --> 00:07:03,840 Speaker 1: you look at the CFTC data alex the broader US 164 00:07:03,880 --> 00:07:06,600 Speaker 1: equity futures positioning across all of the byside, so we 165 00:07:06,640 --> 00:07:10,040 Speaker 1: add up three different categories together. It's been sitting above 166 00:07:10,280 --> 00:07:13,760 Speaker 1: January twenty eighteen levels, It's been sitting above February twenty 167 00:07:13,800 --> 00:07:16,560 Speaker 1: twenty levels, and also above the levels of twenty twenty 168 00:07:16,600 --> 00:07:18,920 Speaker 1: one twenty twenty two, though frankly those weren't nearly as 169 00:07:19,000 --> 00:07:21,440 Speaker 1: high as what we saw back in the twenty eighteen 170 00:07:21,480 --> 00:07:23,840 Speaker 1: and twenty twenty time frames. So there has just been. 171 00:07:24,240 --> 00:07:26,400 Speaker 1: You know, I don't think people necessarily have sounded raw 172 00:07:26,440 --> 00:07:27,960 Speaker 1: raw when you've talked to them, but if you've looked 173 00:07:27,960 --> 00:07:30,760 Speaker 1: at the actual positioning data in the futures market, you know, 174 00:07:31,040 --> 00:07:33,600 Speaker 1: these are some of the levels that have historically just 175 00:07:33,720 --> 00:07:36,080 Speaker 1: caused a tremendous amount of volatility, and we need to 176 00:07:36,160 --> 00:07:36,960 Speaker 1: let that play. 177 00:07:36,720 --> 00:07:39,000 Speaker 2: Out in here, all right, Lorie Calalacina, thank you so 178 00:07:39,120 --> 00:07:41,120 Speaker 2: much for joining us. We know you're super busy today. 179 00:07:41,160 --> 00:07:44,920 Speaker 2: Lori Cavalcina, she's head of US equity strategy at RBC 180 00:07:45,000 --> 00:07:45,840 Speaker 2: Capital Markets.