Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We need some perspective on this market in a big way.
Speaker 2: With some of those futures readings at least was just reporting.
Speaker 2: And for that we go to the lawn in Charlottesville, Virginia,
Speaker 2: Lori Calvacina ahead of US Equity Strategy, RBC Capital Markets.
Speaker 2: If you know what that means. You know, Laurie, what
Speaker 2: do you make of the last couple of trading days
Speaker 2: here in the futures market here today? The market kind
Speaker 2: of turned on a dime there on that job's number.
Speaker 1: It did look. I think the biggest takeaway we have
Speaker 1: right now is people like Tom Keane going on vacation.
Speaker 1: I think everyone's going to be afraid to take vacation
Speaker 1: in August now. But I think the reality is that
Speaker 1: we have to take the last couple days in context.
Speaker 1: And that's what we really tried to remind people of
Speaker 1: in our Weekly this morning. We're not sitting here saying
Speaker 1: recession fears didn't escalate, that there weren't some signals in
Speaker 1: the jobs report, in the ism report on Thursday, But
Speaker 1: we do think people need to bear in mind that
Speaker 1: we had I think I came up with like six
Speaker 1: or seven different reasons that market should be selling off
Speaker 1: right now. This includes valuations that were full, a tendency
Speaker 1: for the stock market to sell off after first rate cuts,
Speaker 1: a curse, so maybe we're pulling that forward. We had
Speaker 1: extremely elevated positioning on the CFTC data for US equity futures,
Speaker 1: Nasdaq futures, SMP futures, AAII was sending us a sell signal.
Speaker 1: The last couple of weeks. We've got the election, where
Speaker 1: dynamics are shifting that typically produces a pullback in September,
Speaker 1: and maybe we're pulling that up. And by the way,
Speaker 1: markets have been correlated with Trump and now he's lagging
Speaker 1: behind Harris. So there's a lot of stuff going on.
Speaker 1: And by way, add the fact that seasonality the last
Speaker 1: five years has been really really poor time to be
Speaker 1: in the stock market August through October, I think, including
Speaker 1: specifically twenty twenty two and twenty twenty three. So there
Speaker 1: have been a lot of reasons this market has needed
Speaker 1: to take a bit of a pullback in here.
Speaker 3: So Laurie, it's Alex and I love reading all your
Speaker 3: notes is like first must read on Monday. Got to
Speaker 3: set you up right, when does though a healthy correction
Speaker 3: become an unhealthy one.
Speaker 1: So I think the biggest thing I'm worried about in here,
Speaker 1: and I'm trying to tell everybody keep a calm head today,
Speaker 1: Like I do think we need to dig into the
Speaker 1: BLS report a bit more, you know, find out exactly
Speaker 1: what the weather impact was there. But I do think
Speaker 1: that the rule of thumb I always use is five
Speaker 1: to ten percent is a typical correction if you look
Speaker 1: from peak, So that would kind of take us down
Speaker 1: to sort of the fifty one hundred marks. We'd have
Speaker 1: to watch markets closely in here, if you look at
Speaker 1: sort of the ten to twenty percent range, that's typically
Speaker 1: you know, in the coast GFC world where the growth
Speaker 1: scarers settle in. Now, twenty twenty two was a little
Speaker 1: bit different. It wasn't a recession. We fell twenty five percent,
Speaker 1: but generally anything more than twenty percent is an actual recession.
Speaker 1: And I think one of the reasons why it's so jarring,
Speaker 1: you know, kind of the move from Wednesday to Thursday Friday,
Speaker 1: is that if you go back to corporate earnings and
Speaker 1: equity investors, we've all had our heads stuck in these
Speaker 1: corporate reports the last couple of weeks. What we're seeing
Speaker 1: in that jobs data, it's not really syncing up with
Speaker 1: what we're hearing companies right now. So I do think
Speaker 1: we need to sort of take it one step at
Speaker 1: a time.
Speaker 2: In here, Llurie, what do you think the Federal Reserve
Speaker 2: is going to do here? There were some discussion over
Speaker 2: the weekend, maybe an emergency rate cut. What do you
Speaker 2: think they're going to do here?
Speaker 1: So I have no idea, you know, I think we
Speaker 1: have to talk to the rates crop, We have to talk,
Speaker 1: We have to talk to some of the reporters, but
Speaker 1: the true that they don't and you know, I get
Speaker 1: a little bit of frustrated with the fed guessing game
Speaker 1: that people play on Wall Street all the time. I think,
Speaker 1: you know, they're looking at data, they're trying to make
Speaker 1: the best decisions that they can. But what I can
Speaker 1: tell you is this question has come up a few
Speaker 1: times since Friday, and even frankly since the CPI report.
Speaker 1: That's when my rate strategist was telling me he was
Speaker 1: first getting questions about fifty basis points. And you know,
Speaker 1: I kind of went and dug up some of my
Speaker 1: work from SVB looked through some of my files and
Speaker 1: we found that in at least kind of my time
Speaker 1: on Wall Street I started in two thousand, when you
Speaker 1: either get sort of the big chunky cuts or you
Speaker 1: get the emergency cuts. You know, generally they don't tend
Speaker 1: to happen in isolation. They tend to happen in by
Speaker 1: So I worry a little bit that if we get
Speaker 1: some sort of emergency action, if we get some sort
Speaker 1: of big chunky cut, it could further spook the market.
Speaker 1: That's just my opinion, though there's certainly people out there
Speaker 1: smarter on this than me. No.
Speaker 3: I mean, it's a fair point, and there are a
Speaker 3: lot of people out there who are trade equities who
Speaker 3: are in kind of your boat, right, So right, based
Speaker 3: on all of that, when and where do you buy
Speaker 3: the dip?
Speaker 1: So I think we've got to take it one day
Speaker 1: at a time, you know, I want to see sort
Speaker 1: of how the market reacts if we get down to
Speaker 1: that ten percent threshold, you know, I think that's sort
Speaker 1: of where we could look to see if there's a
Speaker 1: line in the sand. The other thing that's come up
Speaker 1: a bit this morning is just you know, sort of
Speaker 1: looking at valuations, you know, we we've been very elevated.
Speaker 1: For example, on those top ten names in the broader
Speaker 1: market in SMP you've been traded. You got up to
Speaker 1: thirty two times on medium PE. Actually it's now fallen
Speaker 1: down as of last Wednesday to around twenty seven. Who
Speaker 1: knows where it is today. Well, we'll see tomorrow. But
Speaker 1: I do think you want to sort of watch for
Speaker 1: some additional relief on those valuations. And I've noticed just
Speaker 1: in my career a lot of times you don't have
Speaker 1: to get super cheap on things for the leading to stop.
Speaker 1: Sometimes you just need to go get back to average,
Speaker 1: get a little bit below average. Small caps, for example,
Speaker 1: it's the opposite phenomenon right now. They keep getting up
Speaker 1: to average and then the trade sort of peters out.
Speaker 1: So I think watching when we get back to average
Speaker 1: valuations on certain things is going to be critical.
Speaker 2: So, Laurie, I'm just looking at Nvidia here in pre
Speaker 2: market trading. The level suggests a you know, a thirty
Speaker 2: percent pullback from its recent high.
Speaker 3: Wow.
Speaker 2: I mean that's that gets your attention. I mean, if
Speaker 2: you've told somebody you could buy, I'll give you Nvidia
Speaker 2: a thirty percent discount to it's high if you said
Speaker 2: that to them on Thursday, I think they grab it
Speaker 2: both hands. What do you think about some of these
Speaker 2: big tech names that have led the market higher in
Speaker 2: which are now taking the big brunt So.
Speaker 1: When I think about the basket as a whole, I
Speaker 1: think that we've just we've sort of hit evaluation ceiling.
Speaker 1: I mentioned, you know, we kind of got up to
Speaker 1: thirty two times on those top ten names on a
Speaker 1: media and PE when it's it's hit sort of you know,
Speaker 1: the upper twenties thirty in the past, that's really been
Speaker 1: the ceiling. So I think we kind of hit the
Speaker 1: ceiling on valuations. If you look at the growth rates
Speaker 1: on the MAG seven versus the rest of the market,
Speaker 1: we've had a decelerating growth advantage, and so you know,
Speaker 1: those MAG seven names have just ferocious earnings growth last year,
Speaker 1: but it's expected to celerate both this year and next.
Speaker 1: It's hard to sustain the premium valuations when you've got
Speaker 1: a growth rate that's accelerating off peak, even if everything
Speaker 1: is fine. So I do think the valuations are really
Speaker 1: the key to the story here. We just need to
Speaker 1: see some additional relief.
Speaker 3: The vix has jumped an insane amount in two days.
Speaker 3: The curve is super inverted at this point. What kind
Speaker 3: of damage does a VIX that's moved the most in
Speaker 3: thirty years due to the equity market.
Speaker 1: So look, I think it's a question of where does
Speaker 1: it settle out? You know, I actually called someone this morning.
Speaker 1: I noted I got to the office pretty early and
Speaker 1: it was around fifty and I called someone to say,
Speaker 1: this is real, you know, you know, is actually the
Speaker 1: real data point. So I'm glad you guys are reporting
Speaker 1: it as well, but I think the reality is it
Speaker 1: just tells me that we have a sentiment problem in
Speaker 1: the market, that sentiment needs to unwind. I mean, if
Speaker 1: you look at the CFTC data alex the broader US
Speaker 1: equity futures positioning across all of the byside, so we
Speaker 1: add up three different categories together. It's been sitting above
Speaker 1: January twenty eighteen levels, It's been sitting above February twenty
Speaker 1: twenty levels, and also above the levels of twenty twenty
Speaker 1: one twenty twenty two, though frankly those weren't nearly as
Speaker 1: high as what we saw back in the twenty eighteen
Speaker 1: and twenty twenty time frames. So there has just been.
Speaker 1: You know, I don't think people necessarily have sounded raw
Speaker 1: raw when you've talked to them, but if you've looked
Speaker 1: at the actual positioning data in the futures market, you know,
Speaker 1: these are some of the levels that have historically just
Speaker 1: caused a tremendous amount of volatility, and we need to
Speaker 1: let that play.
Speaker 2: Out in here, all right, Lorie Calalacina, thank you so
Speaker 2: much for joining us. We know you're super busy today.
Speaker 2: Lori Cavalcina, she's head of US equity strategy at RBC
Speaker 2: Capital Markets.