Lori Calvasina 1.8 9 ideas

"What I came up with was basically 6600 to 6900 is fair value... If you want to take the bear side on my model, that was my strongest model. It had been forecasting over 8000 over the next 12 months. So you lop 1000 points off of that." A sustained $100 oil price scenario introduces stagflationary impacts, lowering the fair value of the broader market and capping upside potential compared to previous bullish forecasts. WATCH. The S&P 500 may face significant headwinds and multiple compression if oil prices remain elevated. Oil prices normalize quickly, or corporate earnings growth outpaces the drag of higher inflation and yields.

"Small caps are down to 16.1. The average is 15.2... 11 to 13 times is recession pricing... there's still some wood to chop there." Small caps are highly sensitive to economic stress. Because their current valuation is still well above historical recessionary troughs, they have not fully priced in the downside risk of a macro shock. AVOID. Small caps have further room to fall before reaching a true "washed out" valuation level. The economy achieves a soft landing, preventing small caps from compressing to recessionary multiples.

"The only industry that tends to rise in the post-COVID environment and outperform the market is energy." Broader equities have a -40% inverse correlation to oil prices. In a scenario where oil spikes to $100 due to geopolitical conflict, energy equities act as the sole structural beneficiary and a direct hedge against market underperformance. LONG. The energy sector is positioned to capture the upside of sustained high oil prices while the rest of the market struggles. Geopolitical tensions ease rapidly, leading to a sharp drop in crude oil prices.

"You can find areas like health care, you know, both the pharma side and the health care equipment and services side, not really direct impacts to earnings. And you do see some resilience in those stock prices." Healthcare companies have minimal direct revenue exposure to the Middle East and their cost structures are less sensitive to energy spikes. This makes them a defensive safe haven during oil-driven market volatility. LONG. Healthcare offers relative outperformance and capital preservation when broader indices are dragged down by energy shocks. Broad market panic selling could drag down defensive sectors regardless of their fundamental insulation.

RBC is "overweight" the Healthcare sector. Calvasina notes that during oil crises, "both the pharma group and the health care equipment and services group tend to outperform." When geopolitical risk rises, capital rotates out of high-beta tech and into defensive sectors with stable earnings. Healthcare offers a dual benefit: it acts as a safe haven (defensive) and currently possesses "good valuation appeal" relative to the broader index. LONG Healthcare (XLV) and specifically Pharmaceuticals (XPH) and Medical Devices (IHI) as a hedge against geopolitical volatility. A rapid de-escalation in the Middle East could trigger a "risk-on" rotation back into Tech, causing defensive sectors to lag.

While RBC is officially neutral on the sector, Calvasina admits their valuation model shows Energy "still looks a little bit attractive" and notes it "tends to outperform and go up when oil prices are rising." The conflict involving Iran directly threatens global oil supply. As spot oil prices rise, energy equities (which have lagged spot prices) will likely catch up to reflect higher realized margins for producers. LONG Energy producers to capture the inflation in oil prices caused by the conflict. If the conflict is short-lived or supply is not materially disrupted, the "war premium" in oil prices will evaporate quickly.

Institutional passive equity funds are retreating, and while sentiment (AAI net bulls) has dropped, it hasn't yet hit the "four-week average" trigger that typically signals a bottom. Valuations are ~25x, still above the 19x average. The market is currently in a "discovery process" regarding the war's duration. Buying the dip immediately is premature because institutional flows are still negative and valuations haven't fully reset to historical norms. WATCH. Wait for sentiment to hit extreme bearish levels (contrarian buy signal) or valuations to compress further before entering new long positions. Missing a "V-shaped" recovery if the geopolitical situation resolves faster than anticipated.