WEBVTT - MAIL1Stocks Rise as Traders Assess Fed Hikes (AudiO)

0:00:00.200 --> 0:00:02.760
<v Speaker 1>Strong US jobs data on Friday that added to the

0:00:02.800 --> 0:00:06.720
<v Speaker 1>case for more FED tightening. You have the major averages

0:00:06.840 --> 0:00:10.800
<v Speaker 1>added mixed, little change on Friday. Futures they're highered this morning.

0:00:11.280 --> 0:00:13.520
<v Speaker 1>So it's driving stocks. Let's get your set up with

0:00:13.560 --> 0:00:15.840
<v Speaker 1>the treating day ahead now with Lori Calvassin at the

0:00:15.920 --> 0:00:20.960
<v Speaker 1>HIT of US Equity Strategy, RBC Capital Markets. Laura, Happy Monday,

0:00:20.960 --> 0:00:23.279
<v Speaker 1>Thanks for being with us. What's in the driver's seat

0:00:23.320 --> 0:00:26.360
<v Speaker 1>for stocks? So look, I think that we've got an

0:00:26.400 --> 0:00:29.720
<v Speaker 1>amazing number of cross currents right now between the reporting season,

0:00:29.760 --> 0:00:32.240
<v Speaker 1>which has turned out better than feared. Investors are taking

0:00:32.240 --> 0:00:35.000
<v Speaker 1>some comfort in that we've got the jobs data from

0:00:35.080 --> 0:00:38.120
<v Speaker 1>last week, we've got said watching. I think in general

0:00:38.159 --> 0:00:40.720
<v Speaker 1>investors are breathing a bit of a sigh of relief

0:00:40.800 --> 0:00:44.400
<v Speaker 1>over those two que reporting season prints. Um, we would

0:00:44.400 --> 0:00:46.239
<v Speaker 1>tell you we're not entirely out of the woods from

0:00:46.280 --> 0:00:49.199
<v Speaker 1>a market perspective in terms of earnings right now, just

0:00:49.280 --> 0:00:53.080
<v Speaker 1>because if there really is a big macro slow downcoming economically, UM,

0:00:53.159 --> 0:00:55.040
<v Speaker 1>numbers do still need to come down. But I think

0:00:55.080 --> 0:00:58.840
<v Speaker 1>for the moment, investors are you know, just excited about

0:00:58.520 --> 0:01:02.640
<v Speaker 1>the resilience that we're seeing. Yeah, I mean by our calculations,

0:01:02.640 --> 0:01:06.160
<v Speaker 1>Almost of the S and P five phone companies that

0:01:06.200 --> 0:01:09.920
<v Speaker 1>have reported so far delivered positive earning surprises. You've got

0:01:10.000 --> 0:01:13.560
<v Speaker 1>to wonder if that pace is sustainable and what happens

0:01:13.600 --> 0:01:16.760
<v Speaker 1>to the margins. Well, what's interesting is that if you

0:01:16.760 --> 0:01:19.959
<v Speaker 1>look at the percent of companies beating consensus estimates, um,

0:01:20.000 --> 0:01:22.679
<v Speaker 1>we are very very strong. We are still high relative

0:01:22.720 --> 0:01:24.399
<v Speaker 1>to history. We did a cut a little more than

0:01:24.440 --> 0:01:27.160
<v Speaker 1>halfway through reporting season and found that about seventies six

0:01:27.160 --> 0:01:30.039
<v Speaker 1>percent we're beating on earnings and the average over time

0:01:30.080 --> 0:01:32.680
<v Speaker 1>was about seventy one. But we also found that we

0:01:32.680 --> 0:01:36.400
<v Speaker 1>were well above eight um you know, in recent quarters,

0:01:36.400 --> 0:01:39.560
<v Speaker 1>so that the pace is softening just a little bit. Um,

0:01:39.600 --> 0:01:41.480
<v Speaker 1>I'll tell you John. What's really interesting to me is

0:01:41.480 --> 0:01:43.080
<v Speaker 1>that if you look at the small cat part of

0:01:43.120 --> 0:01:46.240
<v Speaker 1>the market, the beat stats are hitting all time highs,

0:01:46.480 --> 0:01:48.800
<v Speaker 1>which is maybe one of the untold stories in this

0:01:48.880 --> 0:01:51.480
<v Speaker 1>reporting season. So smart that the small cats are really

0:01:51.520 --> 0:01:54.040
<v Speaker 1>the star of the show, the small comps also being

0:01:54.160 --> 0:01:59.840
<v Speaker 1>the more domestic stocks. What is the differentiation there? What

0:02:00.080 --> 0:02:03.000
<v Speaker 1>the why is that? So I think that there are

0:02:03.040 --> 0:02:05.559
<v Speaker 1>a few things going on. We do know that small caps,

0:02:05.640 --> 0:02:07.560
<v Speaker 1>you know, if you look at operating margin trends do

0:02:07.640 --> 0:02:10.639
<v Speaker 1>tend to be a little bit more sensitive to labor issues. UM,

0:02:10.720 --> 0:02:13.480
<v Speaker 1>So I think it'll be interesting to see if perhaps,

0:02:13.720 --> 0:02:15.960
<v Speaker 1>you know, we we have heard companies in recent quarters

0:02:15.960 --> 0:02:18.000
<v Speaker 1>allude to the idea that the labor market is loosening

0:02:18.080 --> 0:02:19.960
<v Speaker 1>up just a little bit. That could be translating to

0:02:20.000 --> 0:02:21.959
<v Speaker 1>the bottom line in small caps in a bigger way.

0:02:22.360 --> 0:02:26.080
<v Speaker 1>But I do think in part it's that domestic revenue exposure.

0:02:26.120 --> 0:02:29.400
<v Speaker 1>Small caps have less of that international exposure. I'm tending

0:02:29.440 --> 0:02:31.280
<v Speaker 1>to be, you know, sort of more resilient and a

0:02:31.320 --> 0:02:34.440
<v Speaker 1>stronger dollar type environment, whereas when we look at you know,

0:02:34.480 --> 0:02:38.480
<v Speaker 1>the more international SMP five hundred type because we are

0:02:38.560 --> 0:02:41.160
<v Speaker 1>hearing a lot of complaints about dollar strength, and we

0:02:41.200 --> 0:02:44.160
<v Speaker 1>are seeing a decent number of downward revisions that are

0:02:44.200 --> 0:02:47.240
<v Speaker 1>that are are based on just the currency itself. And

0:02:47.320 --> 0:02:50.560
<v Speaker 1>as the Fed continues to raise rates, the trajectory higher

0:02:50.680 --> 0:02:53.240
<v Speaker 1>the dollar also higher. How much higher do you suppose

0:02:53.280 --> 0:02:57.440
<v Speaker 1>it can go? Well, Luckily, my forecasting is limited to

0:02:57.480 --> 0:02:59.640
<v Speaker 1>the S and P five hundred UM. But but what

0:02:59.720 --> 0:03:02.800
<v Speaker 1>I will tell you is that UM, a stronger dollar,

0:03:03.480 --> 0:03:04.880
<v Speaker 1>you know, at the end of the day, to the

0:03:04.919 --> 0:03:08.760
<v Speaker 1>extent that it's reflecting US economic strength relative to the

0:03:08.760 --> 0:03:11.400
<v Speaker 1>rest of the world. It does actually end up being um,

0:03:11.440 --> 0:03:13.120
<v Speaker 1>a little bit of a wash on our model. The

0:03:13.120 --> 0:03:16.920
<v Speaker 1>downward revisions do hurt um from that currency translation. But

0:03:17.000 --> 0:03:18.600
<v Speaker 1>at the end of the day, the sort of relative

0:03:18.600 --> 0:03:21.679
<v Speaker 1>economic strength ends up being a good thing. So there's

0:03:21.720 --> 0:03:24.720
<v Speaker 1>good and bad in the stronger dollar. Another inflation report

0:03:24.800 --> 0:03:26.760
<v Speaker 1>this week, so I'm going to ask you to forecast

0:03:26.840 --> 0:03:31.280
<v Speaker 1>that have we passed peak inflation? So our economists think

0:03:31.320 --> 0:03:33.959
<v Speaker 1>that we could see, you know, some some tough prints

0:03:34.000 --> 0:03:37.000
<v Speaker 1>for a little bit longer. And you know, they do

0:03:37.080 --> 0:03:39.040
<v Speaker 1>think the job stated that we saw last week, we'll

0:03:39.080 --> 0:03:41.680
<v Speaker 1>keep the Fed aggressive for a little bit longer um.

0:03:41.680 --> 0:03:44.040
<v Speaker 1>But in general they do think the trend on inflation

0:03:44.200 --> 0:03:46.560
<v Speaker 1>is going to start to moderate soon. We just haven't

0:03:46.600 --> 0:03:48.880
<v Speaker 1>quite gotten to the point where we're there just yet.

0:03:49.160 --> 0:03:51.320
<v Speaker 1>Does the tell you well, I was just going to

0:03:51.400 --> 0:03:54.360
<v Speaker 1>tell you, John, I personally as a strategist, I don't

0:03:54.520 --> 0:03:56.640
<v Speaker 1>you know, I don't love the high inflation prints, but

0:03:56.680 --> 0:03:59.240
<v Speaker 1>I do worry what happens to earnings when inflation moderates,

0:03:59.280 --> 0:04:01.560
<v Speaker 1>because we do tend to see a pretty strong correlation

0:04:01.600 --> 0:04:04.920
<v Speaker 1>between CPI and revenues. Does the Climate Bill, what's known

0:04:04.960 --> 0:04:07.840
<v Speaker 1>as the Inflation Reduction Act, passed by the Senate over

0:04:07.840 --> 0:04:11.240
<v Speaker 1>the weekend. Does that move the needle on stocks? You know?

0:04:11.360 --> 0:04:13.200
<v Speaker 1>To me, it's not a big game changer. We got

0:04:13.240 --> 0:04:16.400
<v Speaker 1>some questions about the stock buy back tax UM, you know,

0:04:16.480 --> 0:04:18.599
<v Speaker 1>late last week and when it became pretty clear that

0:04:18.640 --> 0:04:20.640
<v Speaker 1>this bill was going to pass UM. When I talked

0:04:20.680 --> 0:04:23.000
<v Speaker 1>to my analysts and we just did some quick checks,

0:04:23.040 --> 0:04:25.200
<v Speaker 1>we found that most of them, you know, think that

0:04:25.240 --> 0:04:28.880
<v Speaker 1>maybe their companies will grumble a little bit about this tax,

0:04:28.960 --> 0:04:31.800
<v Speaker 1>but they don't ultimately see it deterring behavior. We had

0:04:31.839 --> 0:04:34.120
<v Speaker 1>one analyst tell us that he thinks his companies are

0:04:34.120 --> 0:04:37.160
<v Speaker 1>probably going to accelerate buybacks in the short term UM,

0:04:37.200 --> 0:04:39.760
<v Speaker 1>just to sort of get ahead of the text coming

0:04:39.839 --> 0:04:42.200
<v Speaker 1>up later. But in general, I don't think it's a

0:04:42.240 --> 0:04:44.640
<v Speaker 1>big game changer. We don't have any buy back impact

0:04:44.680 --> 0:04:47.520
<v Speaker 1>baked into our earnings model for next year. Maybe it

0:04:47.560 --> 0:04:50.080
<v Speaker 1>pushes a few companies at the margins towards dividends and

0:04:50.080 --> 0:04:53.279
<v Speaker 1>benefit sectors like energy UM, but I think it's you know,

0:04:53.360 --> 0:04:55.920
<v Speaker 1>it's more interesting about it what it's signifying politically for

0:04:56.000 --> 0:04:58.839
<v Speaker 1>the mid terms. To be honest, Okay, LORI always a pleasure.

0:04:58.880 --> 0:05:02.000
<v Speaker 1>We appreciated. LORI almost seen ahead of US equity strategy,

0:05:02.480 --> 0:05:03.839
<v Speaker 1>RBC Capital Markets