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