00:00So it's a great question, Tom. And I mean, you know, I like to say we have these drawdown charts
00:03we highlight in our marketing deck. It feels a whole lot worse than that 2%. And that just speaks to
00:08sort of the pain that we've seen under the surface. Look, we have an 81-50 target over the next
00:1312 months, so sort of a mid-2027 number at this point. But we have never said that it was
00:19going to get there in a straight line. And so we have been looking for pullbacks that would be, frankly,
00:24no worse than 5% to 10%.
00:25I do think this earnings season is a little bit tricky, because on the one hand, you know, the bar
00:30is just incredibly high. We had 30% growth last reporting season, last quarter. We're tracking it like 25 and
00:37change now. Seems very difficult to not, you know, sort of come out of this with a decelerating growth environment.
00:42At the same time, we've seen that 25% move up over the last week. So I think it's a
00:48little bit tricky in here. I do think the bar is high. I think the commentary is going to matter
00:52tremendously.
00:54So it feels like the bar for second quarter earnings is really high, is there? But yet, this market has
01:00cleared it seemingly every single quarter. What's your confidence level for this quarter?
01:06So, you know, Paul, if you'd asked me that question like three weeks ago, I didn't feel so good. I
01:11feel a little bit better now. And that's because some of the stats I track have actually worsened.
01:16And that's looking at earnings sentiment or the rate of upward revisions. And so we have seen that now start
01:22to trend down. It's still showing upward revisions generally, but just at a slower pace.
01:26And we're seeing that downtick in earnings sentiment now for the S&P 500, the top 10 market cap names,
01:32and the other 490 stocks in the index. So I think there's some good news there.
01:37You know, one sector we upgraded recently was actually the consumer discretionary sector. We did not go to overweight, but
01:43we took our longstanding underweight off and went back to neutral.
01:46And that's a sector I'm really curious. We won't get those until a little bit later in reporting season for
01:51the most part.
01:51But everybody is negative on that sector. I just did a survey of my analysts. And across the globe, Europe,
01:58Canada, Australia, the U.S., there was pretty deep negativity on staples, discretionary, the comm services sector, which is tangentially
02:05consumer.
02:06And we found that the valuations have been looking better. We've been looking at the U-Mish survey where you're
02:12seeing upticks across cohorts, gender, income, education, partisanship.
02:19So we felt like that was an area maybe the pessimism had been too deep.
02:22Laurie, I have to pause the show because I'm showing off my Red Sox jacket to Ann Marie Horton as
02:28she walks by just because the Red Sox have won 13 in a row and the dreaded Yankees.
02:35And what a shock. Ann Marie Horton is ignoring me. Yes.
02:38Like everyone this weekend. Paul, continue the show with Laurie Calvacina.
02:42Laurie, talk to us about small and mid-cap stocks here. We've seen the Russell 2000 really do a good
02:48job vis-à-vis the S&P 500 this year.
02:50You know, it's interesting. It is a tale of two indexes, though.
02:53Remember, we just went through the Russell reconstitution and a lot of the high flyers got booted up to big
02:58cap land.
02:59One of the things we saw, Paul, was that if you looked at the Russell 2000, a market cap weighted
03:05median PE, just a forward-looking metric.
03:08Prior to the reconstitution, that was over 20 times and it kind of blown through the highs of 19 that
03:13had been the recent ceiling.
03:15Post-reconstitution, it pulled back down to average a little above 17 times.
03:19So we pulled the froth out of that index when we pushed the high flyers out, but we didn't make
03:24the index look cheap.
03:25And I think that's a good, you know, sort of microcosm for how to think about the space.
03:30Defroth, but not deeply compelling.
03:32If we get back into a conversation about Fed hikes going forward, that's a negative for this space.
03:38On the other hand, we are seeing, you know, various cyclical indicators turn up like ISM new orders.
03:43Jobs growth is accelerating. GDP forecasts are inching up.
03:45Now, all of those things are put at risk by this re-escalation of the war, but there are some
03:50good tailwinds on the fundamental side.
03:53I just don't know that we have a ton of valuation room here.
03:55I mean, Laurie, I got the Spanish stock market.
03:57I'm doing that for the World Cup, Laurie.
03:59Stay with me here.
04:00I'm doing the Spanish stock market up 34 percent, 12 months trailing.
04:04Dow Jones up 18 percent.
04:06S&P up 18 percent.
04:08All-in NASDAQ up 22 percent.
04:10Do we feel like a bull market?
04:14You know, it feels like a market that takes a couple of steps forwards and then a step back.
04:18And I think that it's climbing the wall of worry, so to speak.
04:21Exactly.
04:22Yeah, I just covered the U.S.
04:24You know, I know that there have been sort of allegations of froth.
04:27I have not seen it in my valuation data.
04:29I have not seen it in my positioning data.
04:31X, perhaps, the conference board has a good time series on stock market optimism from consumers over the next 12
04:38months.
04:38So that is pretty elevated, but institutions do not feel frothy to me when I look at that data.
04:43Well, it's a headline made for Laurie Calvacina.
04:46Google plans new chip to boost AI model efficiency.
04:52It just doesn't end.
04:53No.
04:54That's according to the information.
04:55So some more news.
04:56Google stock's up one and a quarter percent pre-market here.
04:59Laurie, as we do come into some technology earnings this week and next,
05:03how do you think the market's looking at the AI trade broadly defined these days?
05:08That's the question.
05:09It's a great question, Paul.
05:11And, you know, if you think about, you know, sort of this unwind of the semiconductors that we've seen,
05:16I was hearing back in mid-May, and I think we've probably talked about this a couple times on this
05:20show,
05:20but I was hearing back in mid-May from European investors that they wanted to take profits,
05:24you know, on some of the semi-AI type names, some of the winners in their portfolio, frankly.
05:29So, you know, while I don't think that this price action has been fun for anybody involved,
05:34I do think that, you know, we were sort of hearing the seeds of this for a while.
05:38Now, what I'm hearing more recently, and I would say it's not all clients, but some clients,
05:41and my RBC colleagues are, you know, hearing this as well,
05:44is that the hedge fund community is tending to view what's been happening as more of a positioning,
05:49momentum, factor unwind, not anything fundamental.
05:52Now, when I talk to some of my more Longoli-oriented clients,
05:55some of these existential AI fears were at peak capex growth rates,
05:59things were going to slow, you know, those things are perking up in some conversations,
06:04but I would say, by and large, most people I talk to think that this is just a positioning move.
06:10It's late innings.
06:11There's going to be an opportunity to buy some of this stuff back.
06:13Late innings is baseball talk.
06:15That's when the Red Sox win.
06:16Sure.
06:1713 in a row.
06:1813 in a row.
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