Worried investors don't have a fully-formed inflation thesis, says RBC's Lori Calvasina

Joining us here at Post 9 is RBC’s Laurie Calvasina helping make some sense of I guess maybe I hope you won’t mind a couple macro things to start, Laurie. One is that there is this hope that even an inline CPI number would begin to demonstrate some moderation of inputs like auto insurance is, is that reaching too far for the Duffs or bulls? No, I mean, look I it feels like this rate cut optimism has really just come back over the last week. If I think back to last week in my client meetings, people were getting nervous on the consumer. Some of these earnings reports had come out. Then we got a couple, you know, wonky jobs reports and all of a sudden it’s like, oh, rate cuts are back on the table and we had gone from no cuts to like, oh, they’re coming back. So I I’m a little bit mystified as to why we’ve seen such a strong response. I know obviously the jobs data, but I am concerned that maybe people’s enthusiasm for this is a little bit too high again. But I guess we’ll see what the CPI print shows next week. Have you been impressed with what equities have been able to do in the absence of a lot of data noise? I mean, look, I, I agree. You know, I, I heard the show earlier this week and some of Jim’s comments on the consumer and I I’m seeing the same thing, right, in terms of our work that there’s a little bit of softening going on. You’re seeing that in the sentiment data today. So personally, I don’t feel like equities really fell enough in that drawdown we had. We got to about 5 1/2 percent on the lows. I think it should have been a little bit worse than that, no more than 10%. But we never really saw sentiment collapse. I mean Mike, you mentioned this and I watch AAII really closely. It never really even got down into kind of you know, net bear territory, you know, for maybe half a minute and now we’ve bounced back all of a sudden and we’re elevated again. So you know, I’m, I’m worried that investors don’t really have a fully formed thesis on inflation and what’s going to really drive that down. I think the economics community really didn’t have a good handle on why we had those nasty surprises in the first three months of the year. And so I’m not really hearing good explanations frankly for why it’s going to fall, right. And I I guess in addition to the softer jobs numbers we got, we also had Powell at least suggest that the bar for any kind of a hike is very, very high, even if they’re willing to wait a little bit longer here. There’s this other storyline out there that well the rest of the world is really kicking yet. You know, if you look at consumer discretionary in other markets, it seems like it might be taking up some of the slack. So I guess you have that piece of it, maybe it’s a rationalization of what’s going on. But against that is the experience of last summer when you mentioned we didn’t fall enough, right, you got the 5% drop off the July high, came back everything. Everyone thinks it’s OK and then we rolled over again. Yeah. And I do agree with you on sort of the non-us piece of it. One of the things we’ve noticed in the earnings commentary is it’s not like people are saying Europe and China are fantastic, but it’s pretty balanced. And if I go back to prior quarters, for most of the last year it’s all been negative, negative, negative on China and mostly negative on Europe. And now it’s, you know, some companies, it’s OK, it’s getting a little bit better. You’re starting turn around, other companies are still you know singing a negative tune, but it does feel something’s changed in that non-us picture. What about earnings overall, Laurie, I mean it does feel anecdotally at least like many days we’re here guidance was being issued and actually it was not being well received by investors. We had many stocks that were actually down even though the guidance may have just been tweaked. I don’t know what that means for multiples, but just give me the grade here on sort of what you saw from earnings season. So one set of stats that we track is just the percent that are beating on earnings and the percent that are beating on revenues and those jump around, you know, every time we run the numbers. But generally it’s been high earnings beats and a kind of mediocre revenue beat. So it’s telling you there’s a fierce effort from companies to meet those earnings results. And I don’t want to say manufactured or engineered, but that’s what words some people might use. The other thing we noticed another stat we run is just the one day reaction or I guess the two day reaction. It’s really hard to parse the one day reaction but the immediate stock price reaction to whether you beat or miss and early on in reporting season across the Russell 1000, if you were beating, you were still underperforming the broader market. You were just not getting rewarded those first couple weeks. Now we’re seeing the reverse in the stats where the beats do seem to matter and the data kind of looks a bit more normal. What explains that? You know it’s I I think to be honest a lot of it is sector mix. So we had a lot of financials and industrials early on and there were also some of the, you know technology companies where I think expectations were maybe you know higher than official. We’re also seeing more clear evidence that in the MAG 7 the earnings growth expectations are decelerating. So I I think that always kind of makes people have some indigestion when you have high growth rates and decelerating earnings growth rates going forward. And so we kind of got out of that, but it’s, you know, it’s acting a little bit normally. It’s found it’s groove, it’s still not fantastic. Even the sort of outperformance we’re seeing on those beats is not as strong as we’ve seen in certain quarters over the past year. So they’re they’re outperforming, but maybe not quite as much as they could.