Episode summary
275: Lori Calvasina, Managing Director, Head of US Equity Strategy, RBC Capital Markets
Alpha Exchange
· · 54 min · Guests: Lori Calvasina
Summary
Lori Calvasina says her S&P 500 framework still starts with earnings, but she now haircuts consensus EPS by about 10% to reflect both the non-AI economy and the risk that AI-linked expectations prove too high. Using those assumptions, plus a view that 10-year yields can stay around 5% and the Fed may deliver three hikes, she puts fair value near 8150 for the midpoint of next year. She argues the market has held up better than in 2022 because the earnings backdrop is much stronger even though rates and inflation remain a headwind.
She distinguishes today’s setup from the 2022 selloff by pointing to the scale and speed of the rate move, and by emphasizing that current earnings strength has offset valuation pressure. On capex, she sees the top 10 S&P 500 names as driving the AI buildout while the rest of the market is still in early stages of recovery, helped by improving ISM new orders.
For sector strategy, RBC has moved from tech to healthcare. Calvasina says healthcare offers a rare mix of attractive valuations, positive revisions, and low correlation with tech, while energy remains interesting but too headline-driven to upgrade. Her broader warning is not a bubble call, but a risk of earnings revisions slipping in 2027 if today’s optimism proves too high.
Key takeaways
- Calvasina cuts consensus EPS by 10% and gets to about 8150 fair value for the S&P 500 at the midpoint of next year.
- She thinks the market’s stronger earnings backdrop is the main reason 2026 has not resembled the 2022 rates shock.
- RBC downgraded technology and upgraded healthcare because healthcare screens well on valuation, revisions, and diversification versus XLK.
- Energy remains neutral because the sector’s earnings revisions still track oil prices and war headlines too closely.
- Her biggest concern is not a recession right now but 2027 earnings estimates being too optimistic.
Notable quotes
“the clear most bullish outlier was the healthc care sector”
How the episode opens
I came out at the end of the day and I joked with um uh someone from our commodity strategy team. I said, you know, I heard more about AI today than I did about the Iran war. That was probably my biggest macro takeaway from that event was they were all talking about how they were powering the data center uh revolution and the AI revolution.
Um so I do think increasingly, you know, that the technology is permeating just about everything. Financial services, right, talk a lot um about their AI use cases. Um, utilities for example, very expensive sector in the market, but it got there after it became a pillar of the AI trade.
Industrial similarly expensive. I'm joined today by Lori Calvina. She is the head of US equity strategy at RBC Capital Markets, a role in which she's advising the firm's clients on allocating capital across sectors, across themes during what can only be called fascinating times in markets and the world.
Lori, it's great to welcome you back to the podcast.
Thanks for having me. I'm a big fan of the podcast, so it's an honor to be asked. I am uh looking forward to the the conversation and just to dive into some of the work you're doing on the portfolio strategy front again in an era in which uh this AI theme is is everywhere but there's so many other crosscurrens whether they're rates uh crude inflation the monetary policy response there's so much go so much going on let us start with a little bit of framework first so as I prepare prepared for this conversation.
I saw you did uh a piece um on uh financial news and you were talking about the rates side of things. So, not where you're extremely focused, but you're taking it as an input into your process.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- s&p 500 valuation framework
- corporate earnings strength
- interest rate repricing comparison
- consensus earnings estimate cuts
- ai investment cycle capex
Companies and tickers mentioned
- RBC Capital Markets
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Alpha Exchange, this episode and its artwork belong to Dean Curnutt. Octagon is not affiliated with the show; this page is an independent summary.
