Inverted Curve, Deep Dive Into P/Es vs. Rates & Inflation, The Next Big Test
By Lori Calvasina
Published September 27, 2022 | 7 min listen
This week in the podcast, we reflect on some of the most interesting questions we got and things that we saw last week. Three big things you need to know: First, positioning trades within US equities tend to be fairly mixed during yield curve inversions (a topic of focus in our investor meetings even before the FOMC) but have a classic defensive bias. Second, an S&P 500 P/E of ~16x seems reasonable based on post-FOMC interest rate and inflation views and our analysis of the relationship between rates, inflation, and P/Es dating back to the 1970s. Third, the 3,500 level on the S&P 500 will be key to watch as it represents the point at which a median recession would be priced in and the S&P 500 P/E based on 2023E EPS would fall below average again, using our below-consensus EPS forecast of $212.
Lori Calvasina
Managing Director & Global Head of Equity Strategy, RBC Capital Markets
Lori Calvasina joined RBC Capital Markets as Head of U.S. Equity Strategy in 2017 as a Managing Director. Having spent nearly two decades as an equity strategist at major investment banks, Lori is an expert on the US stock market, and regularly represents RBC in the financial media on Bloomberg and CNBC. Prior to joining RBC, Lori was a senior equity strategist at Credit Suisse from 2010 to 2017, covering Small/Mid Cap Strategy from 2010-2014 and both Small/Mid Cap and US Equity Strategy from 2015-2017. She spent the first ten years of her career at Citi in a variety of roles including lead Small/Mid Cap Strategist from 2007-2010. In both 2008 and 2009 Lori was ranked #2 in the Small Companies category in the Institutional Investor All America Research team poll. Lori is a graduate of the University of Virginia and its selective Government & Foreign Affairs’ Honors Program. In 2019, she was named to Crains New York’s list of Notable Women in Finance.
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