WEBVTT - Lori Calvasina Talks Markets Since Jobs Day 0:00:02.600 --> 0:00:07.000 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.480 --> 0:00:10.360 We need some perspective on this market in a big way. 0:00:10.360 --> 0:00:12.879 With some of those futures readings at least was just reporting. 0:00:12.880 --> 0:00:16.480 And for that we go to the lawn in Charlottesville, Virginia, 0:00:16.600 --> 0:00:19.960 Lori Calvacina ahead of US Equity Strategy, RBC Capital Markets. 0:00:19.960 --> 0:00:23.239 If you know what that means. You know, Laurie, what 0:00:23.280 --> 0:00:25.520 do you make of the last couple of trading days 0:00:25.520 --> 0:00:28.280 here in the futures market here today? The market kind 0:00:28.280 --> 0:00:30.600 of turned on a dime there on that job's number. 0:00:31.880 --> 0:00:34.000 It did look. I think the biggest takeaway we have 0:00:34.120 --> 0:00:36.479 right now is people like Tom Keane going on vacation. 0:00:36.560 --> 0:00:38.440 I think everyone's going to be afraid to take vacation 0:00:38.520 --> 0:00:41.840 in August now. But I think the reality is that 0:00:41.960 --> 0:00:44.760 we have to take the last couple days in context. 0:00:44.760 --> 0:00:46.960 And that's what we really tried to remind people of 0:00:47.040 --> 0:00:49.720 in our Weekly this morning. We're not sitting here saying 0:00:49.880 --> 0:00:53.360 recession fears didn't escalate, that there weren't some signals in 0:00:53.400 --> 0:00:56.040 the jobs report, in the ism report on Thursday, But 0:00:56.080 --> 0:00:58.120 we do think people need to bear in mind that 0:00:58.200 --> 0:01:00.200 we had I think I came up with like six 0:01:00.240 --> 0:01:03.440 or seven different reasons that market should be selling off 0:01:03.520 --> 0:01:07.120 right now. This includes valuations that were full, a tendency 0:01:07.120 --> 0:01:10.000 for the stock market to sell off after first rate cuts, 0:01:10.000 --> 0:01:12.679 a curse, so maybe we're pulling that forward. We had 0:01:12.840 --> 0:01:17.920 extremely elevated positioning on the CFTC data for US equity futures, 0:01:18.000 --> 0:01:22.720 Nasdaq futures, SMP futures, AAII was sending us a sell signal. 0:01:22.760 --> 0:01:25.479 The last couple of weeks. We've got the election, where 0:01:25.560 --> 0:01:28.800 dynamics are shifting that typically produces a pullback in September, 0:01:28.880 --> 0:01:30.720 and maybe we're pulling that up. And by the way, 0:01:30.760 --> 0:01:33.440 markets have been correlated with Trump and now he's lagging 0:01:33.480 --> 0:01:37.200 behind Harris. So there's a lot of stuff going on. 0:01:37.319 --> 0:01:40.479 And by way, add the fact that seasonality the last 0:01:40.560 --> 0:01:43.760 five years has been really really poor time to be 0:01:43.800 --> 0:01:46.640 in the stock market August through October, I think, including 0:01:46.640 --> 0:01:49.520 specifically twenty twenty two and twenty twenty three. So there 0:01:49.560 --> 0:01:52.120 have been a lot of reasons this market has needed 0:01:52.160 --> 0:01:53.960 to take a bit of a pullback in here. 0:01:54.440 --> 0:01:56.560 So Laurie, it's Alex and I love reading all your 0:01:56.560 --> 0:01:58.640 notes is like first must read on Monday. Got to 0:01:58.640 --> 0:02:01.480 set you up right, when does though a healthy correction 0:02:01.560 --> 0:02:02.760 become an unhealthy one. 0:02:04.480 --> 0:02:06.560 So I think the biggest thing I'm worried about in here, 0:02:06.600 --> 0:02:08.959 and I'm trying to tell everybody keep a calm head today, 0:02:09.080 --> 0:02:11.040 Like I do think we need to dig into the 0:02:11.080 --> 0:02:14.280 BLS report a bit more, you know, find out exactly 0:02:14.320 --> 0:02:17.160 what the weather impact was there. But I do think 0:02:17.200 --> 0:02:20.040 that the rule of thumb I always use is five 0:02:20.080 --> 0:02:22.359 to ten percent is a typical correction if you look 0:02:22.400 --> 0:02:24.679 from peak, So that would kind of take us down 0:02:24.720 --> 0:02:26.720 to sort of the fifty one hundred marks. We'd have 0:02:26.800 --> 0:02:29.480 to watch markets closely in here, if you look at 0:02:29.520 --> 0:02:32.160 sort of the ten to twenty percent range, that's typically 0:02:32.240 --> 0:02:34.440 you know, in the coast GFC world where the growth 0:02:34.480 --> 0:02:37.119 scarers settle in. Now, twenty twenty two was a little 0:02:37.160 --> 0:02:40.080 bit different. It wasn't a recession. We fell twenty five percent, 0:02:40.320 --> 0:02:43.320 but generally anything more than twenty percent is an actual recession. 0:02:43.360 --> 0:02:46.240 And I think one of the reasons why it's so jarring, 0:02:46.600 --> 0:02:49.280 you know, kind of the move from Wednesday to Thursday Friday, 0:02:49.440 --> 0:02:51.400 is that if you go back to corporate earnings and 0:02:51.400 --> 0:02:53.680 equity investors, we've all had our heads stuck in these 0:02:53.680 --> 0:02:56.560 corporate reports the last couple of weeks. What we're seeing 0:02:56.560 --> 0:02:59.240 in that jobs data, it's not really syncing up with 0:02:59.280 --> 0:03:01.600 what we're hearing companies right now. So I do think 0:03:01.680 --> 0:03:03.520 we need to sort of take it one step at 0:03:03.520 --> 0:03:03.760 a time. 0:03:03.800 --> 0:03:06.200 In here, Llurie, what do you think the Federal Reserve 0:03:06.280 --> 0:03:08.519 is going to do here? There were some discussion over 0:03:08.560 --> 0:03:12.079 the weekend, maybe an emergency rate cut. What do you 0:03:12.080 --> 0:03:12.959 think they're going to do here? 0:03:14.639 --> 0:03:16.480 So I have no idea, you know, I think we 0:03:16.560 --> 0:03:18.840 have to talk to the rates crop, We have to talk, 0:03:19.000 --> 0:03:20.720 We have to talk to some of the reporters, but 0:03:20.760 --> 0:03:22.320 the true that they don't and you know, I get 0:03:22.320 --> 0:03:25.480 a little bit of frustrated with the fed guessing game 0:03:25.520 --> 0:03:27.800 that people play on Wall Street all the time. I think, 0:03:27.960 --> 0:03:29.639 you know, they're looking at data, they're trying to make 0:03:29.639 --> 0:03:31.880 the best decisions that they can. But what I can 0:03:31.919 --> 0:03:33.639 tell you is this question has come up a few 0:03:33.680 --> 0:03:37.360 times since Friday, and even frankly since the CPI report. 0:03:38.080 --> 0:03:40.000 That's when my rate strategist was telling me he was 0:03:40.040 --> 0:03:42.960 first getting questions about fifty basis points. And you know, 0:03:42.960 --> 0:03:44.320 I kind of went and dug up some of my 0:03:44.600 --> 0:03:47.560 work from SVB looked through some of my files and 0:03:47.600 --> 0:03:49.920 we found that in at least kind of my time 0:03:49.960 --> 0:03:52.400 on Wall Street I started in two thousand, when you 0:03:52.480 --> 0:03:54.600 either get sort of the big chunky cuts or you 0:03:54.600 --> 0:03:57.920 get the emergency cuts. You know, generally they don't tend 0:03:57.920 --> 0:03:59.920 to happen in isolation. They tend to happen in by 0:04:01.000 --> 0:04:03.400 So I worry a little bit that if we get 0:04:03.440 --> 0:04:05.400 some sort of emergency action, if we get some sort 0:04:05.440 --> 0:04:07.680 of big chunky cut, it could further spook the market. 0:04:07.880 --> 0:04:10.000 That's just my opinion, though there's certainly people out there 0:04:10.040 --> 0:04:11.240 smarter on this than me. No. 0:04:11.320 --> 0:04:13.160 I mean, it's a fair point, and there are a 0:04:13.160 --> 0:04:14.840 lot of people out there who are trade equities who 0:04:14.880 --> 0:04:17.920 are in kind of your boat, right, So right, based 0:04:17.960 --> 0:04:20.680 on all of that, when and where do you buy 0:04:20.680 --> 0:04:21.040 the dip? 0:04:22.640 --> 0:04:24.160 So I think we've got to take it one day 0:04:24.200 --> 0:04:25.600 at a time, you know, I want to see sort 0:04:25.600 --> 0:04:27.560 of how the market reacts if we get down to 0:04:27.600 --> 0:04:30.560 that ten percent threshold, you know, I think that's sort 0:04:30.560 --> 0:04:31.880 of where we could look to see if there's a 0:04:31.920 --> 0:04:33.960 line in the sand. The other thing that's come up 0:04:34.000 --> 0:04:35.719 a bit this morning is just you know, sort of 0:04:35.720 --> 0:04:39.599 looking at valuations, you know, we we've been very elevated. 0:04:39.720 --> 0:04:42.040 For example, on those top ten names in the broader 0:04:42.080 --> 0:04:44.320 market in SMP you've been traded. You got up to 0:04:44.360 --> 0:04:46.760 thirty two times on medium PE. Actually it's now fallen 0:04:46.800 --> 0:04:48.880 down as of last Wednesday to around twenty seven. Who 0:04:48.880 --> 0:04:51.680 knows where it is today. Well, we'll see tomorrow. But 0:04:51.800 --> 0:04:53.279 I do think you want to sort of watch for 0:04:53.360 --> 0:04:56.240 some additional relief on those valuations. And I've noticed just 0:04:56.279 --> 0:04:58.359 in my career a lot of times you don't have 0:04:58.360 --> 0:05:00.719 to get super cheap on things for the leading to stop. 0:05:00.760 --> 0:05:03.039 Sometimes you just need to go get back to average, 0:05:03.040 --> 0:05:06.400 get a little bit below average. Small caps, for example, 0:05:06.400 --> 0:05:09.240 it's the opposite phenomenon right now. They keep getting up 0:05:09.240 --> 0:05:11.680 to average and then the trade sort of peters out. 0:05:11.800 --> 0:05:13.800 So I think watching when we get back to average 0:05:13.880 --> 0:05:15.880 valuations on certain things is going to be critical. 0:05:16.720 --> 0:05:19.400 So, Laurie, I'm just looking at Nvidia here in pre 0:05:19.480 --> 0:05:21.720 market trading. The level suggests a you know, a thirty 0:05:21.760 --> 0:05:23.719 percent pullback from its recent high. 0:05:24.000 --> 0:05:24.320 Wow. 0:05:24.720 --> 0:05:26.680 I mean that's that gets your attention. I mean, if 0:05:26.680 --> 0:05:28.640 you've told somebody you could buy, I'll give you Nvidia 0:05:28.680 --> 0:05:30.800 a thirty percent discount to it's high if you said 0:05:30.800 --> 0:05:32.480 that to them on Thursday, I think they grab it 0:05:32.600 --> 0:05:34.480 both hands. What do you think about some of these 0:05:34.480 --> 0:05:37.279 big tech names that have led the market higher in 0:05:37.320 --> 0:05:40.040 which are now taking the big brunt So. 0:05:40.040 --> 0:05:42.560 When I think about the basket as a whole, I 0:05:42.600 --> 0:05:45.440 think that we've just we've sort of hit evaluation ceiling. 0:05:45.520 --> 0:05:46.880 I mentioned, you know, we kind of got up to 0:05:46.920 --> 0:05:48.920 thirty two times on those top ten names on a 0:05:48.960 --> 0:05:51.359 media and PE when it's it's hit sort of you know, 0:05:51.400 --> 0:05:53.800 the upper twenties thirty in the past, that's really been 0:05:53.839 --> 0:05:55.599 the ceiling. So I think we kind of hit the 0:05:55.600 --> 0:05:58.200 ceiling on valuations. If you look at the growth rates 0:05:58.240 --> 0:06:00.520 on the MAG seven versus the rest of the market, 0:06:00.720 --> 0:06:03.880 we've had a decelerating growth advantage, and so you know, 0:06:03.920 --> 0:06:07.560 those MAG seven names have just ferocious earnings growth last year, 0:06:07.560 --> 0:06:10.040 but it's expected to celerate both this year and next. 0:06:10.760 --> 0:06:14.240 It's hard to sustain the premium valuations when you've got 0:06:14.279 --> 0:06:17.040 a growth rate that's accelerating off peak, even if everything 0:06:17.120 --> 0:06:20.440 is fine. So I do think the valuations are really 0:06:20.480 --> 0:06:22.080 the key to the story here. We just need to 0:06:22.080 --> 0:06:23.200 see some additional relief. 0:06:23.720 --> 0:06:27.200 The vix has jumped an insane amount in two days. 0:06:27.839 --> 0:06:31.400 The curve is super inverted at this point. What kind 0:06:31.440 --> 0:06:34.919 of damage does a VIX that's moved the most in 0:06:35.040 --> 0:06:38.000 thirty years due to the equity market. 0:06:39.240 --> 0:06:41.800 So look, I think it's a question of where does 0:06:41.839 --> 0:06:45.159 it settle out? You know, I actually called someone this morning. 0:06:45.200 --> 0:06:46.880 I noted I got to the office pretty early and 0:06:46.920 --> 0:06:48.800 it was around fifty and I called someone to say, 0:06:48.839 --> 0:06:51.000 this is real, you know, you know, is actually the 0:06:51.040 --> 0:06:52.919 real data point. So I'm glad you guys are reporting 0:06:52.960 --> 0:06:56.039 it as well, but I think the reality is it 0:06:56.200 --> 0:06:58.719 just tells me that we have a sentiment problem in 0:06:58.720 --> 0:07:01.240 the market, that sentiment needs to unwind. I mean, if 0:07:01.240 --> 0:07:03.840 you look at the CFTC data alex the broader US 0:07:03.880 --> 0:07:06.600 equity futures positioning across all of the byside, so we 0:07:06.640 --> 0:07:10.040 add up three different categories together. It's been sitting above 0:07:10.280 --> 0:07:13.760 January twenty eighteen levels, It's been sitting above February twenty 0:07:13.800 --> 0:07:16.560 twenty levels, and also above the levels of twenty twenty 0:07:16.600 --> 0:07:18.920 one twenty twenty two, though frankly those weren't nearly as 0:07:19.000 --> 0:07:21.440 high as what we saw back in the twenty eighteen 0:07:21.480 --> 0:07:23.840 and twenty twenty time frames. So there has just been. 0:07:24.240 --> 0:07:26.400 You know, I don't think people necessarily have sounded raw 0:07:26.440 --> 0:07:27.960 raw when you've talked to them, but if you've looked 0:07:27.960 --> 0:07:30.760 at the actual positioning data in the futures market, you know, 0:07:31.040 --> 0:07:33.600 these are some of the levels that have historically just 0:07:33.720 --> 0:07:36.080 caused a tremendous amount of volatility, and we need to 0:07:36.160 --> 0:07:36.960 let that play. 0:07:36.720 --> 0:07:39.000 Out in here, all right, Lorie Calalacina, thank you so 0:07:39.120 --> 0:07:41.120 much for joining us. We know you're super busy today. 0:07:41.160 --> 0:07:44.920 Lori Cavalcina, she's head of US equity strategy at RBC 0:07:45.000 --> 0:07:45.840 Capital Markets.