Bloomberg Audio Studios, podcasts, radio, news, Pauline and Tom Keen. And what we love to do is particularly at a shop like the Royal Bank of Canada when we get too aligned and too highly competent to say the least. It's fun to get them both into the studio just to get a window into the day-to-day grind. I mean Paul, I mean you look at Lori Calvasina and you look at Amy Silverman, they're talking to two different audiences.
They are. If I'm a salesman at RBC Capital, I'm making bank off it. It's a gift anytime.
Joining us now for the first time ever, Amy Silverman, Lori Calvasina of the Royal Bank of Canada. Let me just get this out of the way. Are the two of you on speaking terms?
We talk all the time. It's my work wife. When you talk about work from the quant area of Amy Silverman over to your incredible PowerPoints showing the texture of the market, what's the number one talking point?
I think we've been talking a lot about tech lately. I mean, it's just the conversation you can't get away from. And by that I mean, you know, the hyperscalers are mostly in a different sector to be honest. But the semis and the momentum trade, I think, is what we've been largely talking about. And what our work is showing on the semis is that you've hit average valuation levels. If you look at sort of a five or 35-year average, we had been hearing a lot of clients saying they thought the momentum wine was late innings, close to done. It's gone on a little bit longer, frankly, than I would have thought. But I would say that's really the genesis of a lot of the conversations of late.
Amy, when you for your clients, are they a big week for earnings, a big tech week for earnings? How are your clients in the futures and ops? Are they leaning into these earnings? Are they saying, like as Lori said, maybe the momentum thing is kind of coming to an end?
It's so interesting because ahead of this week, you know, big four reporting, huge concentration. Tom's favorite word, skew. You know, it's pretty flat, meaning people are not really deciding to hedge in front of any of these stocks. It's actually fairly sanguine. Look, part of that is we already had a big move in sympathy with Alphabet last week. So some of that's taken it off the table. But to give you an example, Meta, its implied move on earnings day is about 7%. This thing moves plus or minus 10% the last four quarters. So the fact that it's an inexpensive move is pretty shocking.
The magic of you two is your worker bees. I mean, you're out there hugely seeing clients. Do clients have a bet, Lori, on the market right now? Are they placing a bet out into 2027?
So you know what's really interesting, Tom, and this has gone back a couple of months now. You know, I go into the meeting and I have my price target and the methodology and the five models and yada yada yada. And people do want to talk about the valuation and earnings model because that's fairly unique in our process. But by and large, Tom, people don't want to talk about market direction. They want to talk about, let's look at all the sectors, where's their opportunity? There's been this view, I would say, the last couple months.
I've had plenty of AI, I've had plenty of tech, I've had plenty of semis. What else should I be looking at? And frankly, a lot of the choices haven't been that interesting to people, so you get kind of stuck in those conversations. Over in your world, and let's say it's more alternative, more hedge funds, more leverage bets using mathematics. Do they have the same feeling of let's go?
Yes and no. There's a little bit of nervousness. For instance, last week what we talked about is this whole levered ETF sphere. There's a lot of, you know, what tail will wag the dog because we've had, my favorite term, the paddling duck on the surface, but you've had these huge multi-standard deviation drawdowns in momentum factor. You have a lot of leverage piled onto these ETFs that are accumulating, and then if you get a burst of correlation, what does that mean to the markets? A little bit of nervousness. But when you look at the hyperscaler specifically, option sentiment is pretty sanguine.
Lori, these earnings we've been having over the last several quarters, including this quarter, have been just extraordinary. I mean, it's almost August here. I think I need to start thinking about 2027. Are comps going to be like really brutally tough?
Well, I think in terms of you know kind of 2Q versus 2Q, there's going to be some wonkiness. But I think the reality is that companies have done a beautiful job of managing through all the challenges we've, as a society, have thrown at them so far. That doesn't always last. And so, one thing we've been highlighting to people is that sort of a risk we see in the coming months is at some point you may need to pull down 2027 earnings forecasts. And that's not so much about the comps, but it is the idea that if you look at the Iran war, for example, the buffers, the inventories, the hedges, those things that are kind of getting you through the next couple quarters, well, you're going to have to reset those. You're going to have to replenish those. We even heard last week one rail talking about how plastics inventories were starting to be rebuilt. Those are going to be done at higher prices.
So, I think that the idea of what you were able to manage through this year, if you have lingering impact next year, might just not be so easy. Across America this morning and in Canada as well. Amy Silverman, Lori Calvasina together from RBC Capital Markets. Paul Sweeney with the ladies who lunch, they dinner, they're in airplane terminals a lot. Yep. Yep. Exactly right. I remember those days. Amy, are you surprised that we're not seeing more hedging in your world? I would think on margin we hear about the wall of worry. I would think we have had a pretty good year here. Earnings can't get any better than this, can they really? Are you surprised maybe you're not seeing more hedging at all in your world?
You know, I try to talk my book and the talk about how hedging is still relatively inexpensive. I think there's this element here of people still remember back to April 2nd. They still remember back to Liberation Day. They know there's this kind of cohort of retail who likes to step in. They like to buy the dip. It's changed a lot of the relationships in our market. This idea of spot goes up and volatility goes up. That's a little mind-blowing for someone like me who's been in the market when that's not true. But there is that hesitancy. I do think as we kind of cross out of earnings, maybe into midterms, you start getting more overall correlation and pickup risk, maybe some more geopolitics that does start to change.
So, I don't know. I mean, I'm thinking about this, Lori. Are there sectors here? I got to get away from the AI trade at some point. Where do I go? I mean, do I buy financials, healthcare?
Well, look, increasingly, AI is penetrating everything. Back at our energy conference in June, I went to one day of it and heard a lot about how the energy companies are powering data centers. But look, I do think that if you look outside of tech, we've been overweight financials for quite some time. We've been sticking with that, reiterating that the valuations still look reasonable. I wouldn't say they're cheap. Earnings revisions are very strong. And last week, I was sort of responsible on the team for reading the financials companies, and I was just really struck by all the innovation that's coming out of certain companies, not necessarily just the big banks. Seeing companies talk about things like prediction markets and how that appeals to their client bases. Seeing the retail brokerages talk about this new retail investor and how we've really changed who's participating in the market. There's a lot of really interesting stuff going on in financials besides AI right now.
And Amy, the people that you talk to, like they're all, the difference here is they all drive Maseratis and fancy cars like that. Lori's talking to people, they got the Range Rover. There's a difference here in terms of cars. The fancy people you talk to, like Coupe, who's on your friends and neighbors on TV, are they in the market now or are they cruising through the summer? What's the intensity right now?
