Speaker 1: Strong US jobs data on Friday that added to the
Speaker 1: case for more FED tightening. You have the major averages
Speaker 1: added mixed, little change on Friday. Futures they're highered this morning.
Speaker 1: So it's driving stocks. Let's get your set up with
Speaker 1: the treating day ahead now with Lori Calvassin at the
Speaker 1: HIT of US Equity Strategy, RBC Capital Markets. Laura, Happy Monday,
Speaker 1: Thanks for being with us. What's in the driver's seat
Speaker 1: for stocks? So look, I think that we've got an
Speaker 1: amazing number of cross currents right now between the reporting season,
Speaker 1: which has turned out better than feared. Investors are taking
Speaker 1: some comfort in that we've got the jobs data from
Speaker 1: last week, we've got said watching. I think in general
Speaker 1: investors are breathing a bit of a sigh of relief
Speaker 1: over those two que reporting season prints. Um, we would
Speaker 1: tell you we're not entirely out of the woods from
Speaker 1: a market perspective in terms of earnings right now, just
Speaker 1: because if there really is a big macro slow downcoming economically, UM,
Speaker 1: numbers do still need to come down. But I think
Speaker 1: for the moment, investors are you know, just excited about
Speaker 1: the resilience that we're seeing. Yeah, I mean by our calculations,
Speaker 1: Almost of the S and P five phone companies that
Speaker 1: have reported so far delivered positive earning surprises. You've got
Speaker 1: to wonder if that pace is sustainable and what happens
Speaker 1: to the margins. Well, what's interesting is that if you
Speaker 1: look at the percent of companies beating consensus estimates, um,
Speaker 1: we are very very strong. We are still high relative
Speaker 1: to history. We did a cut a little more than
Speaker 1: halfway through reporting season and found that about seventies six
Speaker 1: percent we're beating on earnings and the average over time
Speaker 1: was about seventy one. But we also found that we
Speaker 1: were well above eight um you know, in recent quarters,
Speaker 1: so that the pace is softening just a little bit. Um,
Speaker 1: I'll tell you John. What's really interesting to me is
Speaker 1: that if you look at the small cat part of
Speaker 1: the market, the beat stats are hitting all time highs,
Speaker 1: which is maybe one of the untold stories in this
Speaker 1: reporting season. So smart that the small cats are really
Speaker 1: the star of the show, the small comps also being
Speaker 1: the more domestic stocks. What is the differentiation there? What
Speaker 1: the why is that? So I think that there are
Speaker 1: a few things going on. We do know that small caps,
Speaker 1: you know, if you look at operating margin trends do
Speaker 1: tend to be a little bit more sensitive to labor issues. UM,
Speaker 1: So I think it'll be interesting to see if perhaps,
Speaker 1: you know, we we have heard companies in recent quarters
Speaker 1: allude to the idea that the labor market is loosening
Speaker 1: up just a little bit. That could be translating to
Speaker 1: the bottom line in small caps in a bigger way.
Speaker 1: But I do think in part it's that domestic revenue exposure.
Speaker 1: Small caps have less of that international exposure. I'm tending
Speaker 1: to be, you know, sort of more resilient and a
Speaker 1: stronger dollar type environment, whereas when we look at you know,
Speaker 1: the more international SMP five hundred type because we are
Speaker 1: hearing a lot of complaints about dollar strength, and we
Speaker 1: are seeing a decent number of downward revisions that are
Speaker 1: that are are based on just the currency itself. And
Speaker 1: as the Fed continues to raise rates, the trajectory higher
Speaker 1: the dollar also higher. How much higher do you suppose
Speaker 1: it can go? Well, Luckily, my forecasting is limited to
Speaker 1: the S and P five hundred UM. But but what
Speaker 1: I will tell you is that UM, a stronger dollar,
Speaker 1: you know, at the end of the day, to the
Speaker 1: extent that it's reflecting US economic strength relative to the
Speaker 1: rest of the world. It does actually end up being um,
Speaker 1: a little bit of a wash on our model. The
Speaker 1: downward revisions do hurt um from that currency translation. But
Speaker 1: at the end of the day, the sort of relative
Speaker 1: economic strength ends up being a good thing. So there's
Speaker 1: good and bad in the stronger dollar. Another inflation report
Speaker 1: this week, so I'm going to ask you to forecast
Speaker 1: that have we passed peak inflation? So our economists think
Speaker 1: that we could see, you know, some some tough prints
Speaker 1: for a little bit longer. And you know, they do
Speaker 1: think the job stated that we saw last week, we'll
Speaker 1: keep the Fed aggressive for a little bit longer um.
Speaker 1: But in general they do think the trend on inflation
Speaker 1: is going to start to moderate soon. We just haven't
Speaker 1: quite gotten to the point where we're there just yet.
Speaker 1: Does the tell you well, I was just going to
Speaker 1: tell you, John, I personally as a strategist, I don't
Speaker 1: you know, I don't love the high inflation prints, but
Speaker 1: I do worry what happens to earnings when inflation moderates,
Speaker 1: because we do tend to see a pretty strong correlation
Speaker 1: between CPI and revenues. Does the Climate Bill, what's known
Speaker 1: as the Inflation Reduction Act, passed by the Senate over
Speaker 1: the weekend. Does that move the needle on stocks? You know?
Speaker 1: To me, it's not a big game changer. We got
Speaker 1: some questions about the stock buy back tax UM, you know,
Speaker 1: late last week and when it became pretty clear that
Speaker 1: this bill was going to pass UM. When I talked
Speaker 1: to my analysts and we just did some quick checks,
Speaker 1: we found that most of them, you know, think that
Speaker 1: maybe their companies will grumble a little bit about this tax,
Speaker 1: but they don't ultimately see it deterring behavior. We had
Speaker 1: one analyst tell us that he thinks his companies are
Speaker 1: probably going to accelerate buybacks in the short term UM,
Speaker 1: just to sort of get ahead of the text coming
Speaker 1: up later. But in general, I don't think it's a
Speaker 1: big game changer. We don't have any buy back impact
Speaker 1: baked into our earnings model for next year. Maybe it
Speaker 1: pushes a few companies at the margins towards dividends and
Speaker 1: benefit sectors like energy UM, but I think it's you know,
Speaker 1: it's more interesting about it what it's signifying politically for
Speaker 1: the mid terms. To be honest, Okay, LORI always a pleasure.
Speaker 1: We appreciated. LORI almost seen ahead of US equity strategy,
Speaker 1: RBC Capital Markets