RBC's Lori Calvasina on Investor Sentiment, Tariffs, and Sector Picks

Investor Sentiment and Tariffs

• 💡 Investors have become more constructive regarding the impact of tariffs, moving away from earlier concerns about inflation.
• ⚠️ Lori Calvasina warns that investors could be negatively surprised if companies begin cost-cutting measures due to tariff impacts or labor data reverberations.
• 📈 Current market rallies are occurring despite ongoing tariffs and economic uncertainty, but the rebound is starting to feel full.

Earnings and Valuation Outlook

• 📊 Calvasina's base case for earnings is 5730, with a stretched scenario reaching 6200 by assuming 2% inflation and boosted earnings.
• 📉 The current market levels require significant stretching of assumptions to justify, indicating potential overvaluation.

Sector Recommendations

• 🚀 The Materials sector has been upgraded to overweight due to strong analyst conviction, reasonable valuations, and positive fund flows, benefiting from a weaker dollar.
• ⚠️ Industrials are considered expensive, making Materials an attractive alternative.
• neutral. The consumer staples sector is also seen as a weaker dollar play with attractive valuations.

Sectors to Avoid

• 📉 The Consumer Discretionary sector is underweight due to policy risks, lack of attractive valuation compared to staples, and significant tariff exposure.
• ⚠️ Analysts are also negative on consumer discretionary from a bottom-up perspective, leading to a recommendation to steer clear of this sector.