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