Wilmington Trust’s Capital Considerations with Tony Roth
Episode 34: Is the market running out of juice?
Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors, Inc.
Lori Calvasina, Managing Director, Head of U.S. Equity Strategy, RBC Capital Markets
LORI CALVASINA: We think there is still a little bit more room for the market to go higher this year, but not a ton of room. And we think the path between now and the end of the year will be fairly uneven. I do think there’s risk of a decent sized pullback, something that we can easily digest, use as a buying opportunity, and move on.
TONY ROTH: That was Lori Calvasina, managing director and head of U.S. Equity Strategy at RBC Capital Markets. Lori’s joining me today to discuss the soaring equity market and corporate earnings.
TONY ROTH: Welcome to Capital Considerations, the market and economic podcast that’s fully invested in your success. I’m your host, Tony Roth, chief investment officer of Wilmington Trust. The COVID vaccine has resulted in an acute drop in cases and the economy has significantly reopened here in the U.S. and to a lesser degree around the world. We continue to see also on the domestic side continued benefit from easy monetary policy and fiscal stimulus that seems to have no end, although in fact it will end later this year for the most part.
So, the economy has reacted well to all of these developments and the equity market also has risen in an unprecedented manner from the bottom that we reached last March. So, the question before us is to what degree is there juice still left in this market, both in terms of the economy itself and corporate earnings? How much is priced into stocks today?
To lend insight into what we can expect from stocks and corporate earnings, we have with us a highly regarded expert and a personal friend, Lori Calvasina is head of U.S. Equity Strategy for RBC Capital Markets. Prior to joining RBC in 2017, she spent nearly two decades in equity strategy at investment firms including Credit Suisse and Citi, where she twice placed second in the small companies category of Institutional Investors All America Research team. She’s also been named to Crain’s New York List of Notable Women in Banking and Finance. Lori, so happy to have you today to help us sort out the future of stock investing.
LORI CALVASINA: Thanks for having me, Tony. I’m a huge fan of podcasts. It’s my favorite medium. So, I’m really excited to be with you today.
TONY ROTH: Yeah. We know that you have your own podcast, and, hopefully, we’ll be able to get some clear answers to where the stock market’s going.
So, let’s jump right in. What do you think, Lori? How much juice is left in the market? We have almost a certainty that rates are going to rise from here. The markets have already rebounded by an unprecedented amount in the short time that has elapsed since those 2020 troughs that were hit in March of last year. So, is there really meaningful room left for gains in the stock market?
LORI CALVASINA: I think that’s a great question, Tony, and we actually updated our midyear outlook recently and the subtitle we used was we see a little bit more room left in this market. So, our target on the S&P is 4,325, which is of course only a few percentage points above the highs that we’ve already seen this year. And, bottom line, we think there is still a little bit more room for the market to go higher this year, but not a ton of room. And we think the path between now and the end of the year will be fairly uneven. I do think there’s risk of a decent sized pullback, but something probably milder than 10%, maybe in kind of the 5% to 10% type range, something that we can easily digest, use as a buying opportunity, and move on.
But look, I think that we have factored in a lot of the good news, particularly on the economic front this year. So, increasingly now that we’re looking down the barrel of the second half of 2021, we have to consider what the outlook is for 2022 to keep this market going higher. And I do think there are some issues it’s going to—the market is going to have to digest.
TONY ROTH: So, before we get to those issues and think about sort of what the economy might look like once we come back off the, you know, the rebound from the reopening that the vaccine ramp has led to. When you look at the market are you most concerned in this kind of environment around the price-to-earnings ratio? Is it more—a lot of the companies we think about on the growth side it seems to be more about price-to-revenue and as long as the revenue’s growing the amount of earnings have not meant as much over not just this year, but over the last several years? Or is the price-to-book more on the value side? Do you look at all those indicators or are there—is there one that you tend to focus on in this kind of market?
LORI CALVASINA: So, there are two models that we’re focusing on right now and one of them actually includes all of the different metrics that you just mentioned, price-to-book, PE, price-to-sales, PEG ratios. We have a model where we bake all of those indicators together and that model is basically back to tech-level highs. And if you look at it in the small cap space, it’s actually above tech-level highs. So, it’s extremely worrisome when you look at valuations from that perspective.
Now, another model that we look at is a little bit more unique. We look at what I call the top-down PE, so looking at the S&P 500 against the index level EPS, and we look at that against the side of the Fed’s balance sheet. So, you hear all this talk, right, about quantitative easing, right, and that’s how you can really track what the Fed is doing on that front. And I’ll keep it pretty simple for you, but we’ve seen since the financial crisis that that top-down PE multiple has been anchored to the size of the Fed’s balance sheet. So, as long as the Fed is still gradually expanding that balance sheet, it can give you a little bit more lift to those multiples, which are already pretty concerning when you look at them. But it’s very difficult for me to make the case for those PE multiples to come down this year, just given that we do think the Fed will stay accommodative for a bit longer.
TONY ROTH: It’s interesting that you’re focusing on the balance sheet and the quantitative easing, because when I think about the run that we’ve seen in the markets even before the COVID crisis, really since the great financial crisis, it’s been that low interest rate environment that I think that most people have looked to as the justification for having the equity market trade at such high valuations. So, it’s interesting to see that rather than focus on the rate environment, you’re focused more on the size of the Fed balance sheet that would imply to me that perhaps when the quantitative easing ends and the tapering of the monthly purchases starts that that could have a pretty disruptive effect on equities. Do I have that right?
LORI CALVASINA: I think it could. I think it’s also a question though of when does that tapering happen relative to where investor expectations have been. And what we’ve seen in some of the investor surveys we’ve run is that most institutional investors think tapering will start at some point next year. There’s not a clear consensus on exact timing, but 2022 is the general timing.
So, if you were to see that tapering process start a bit earlier, say in the back half of 2021, which is not my view, not what I’m baking in. It is the view of our economist, to be honest. He thinks there’s a real risk that happens. I think that that could definitely be a negative catalyst for the market, because it does have that direct influence on multiples, but it’s also just out of whack with current investor expectations.
TONY ROTH: Let me ask about that, because I know that you analysts, of course, all focus on different things. But one of your favorite areas to really valuate and bake it into the cake, if you will, is investor sentiment. Maybe just take a moment and tell us why investor sentiment is, you know, one of your preferred areas of focus and what is it telling you now?
LORI CALVASINA: I think investor sentiment is sort of the best read that we can get on positioning. And positioning data that we get, which is what’s actually in people’s portfolios, it tends to be a little bit stale. But sentiment data, we have all these different gauges, whether we’re looking at futures market positioning or the weekly AAII bull-bear survey. You can get good reads on that in the short term.
And I think it’s important because, you know, sentiment being stretched is never a catalyst in and of itself to take the market down or when it’s stretched to the downside, right, when everybody hates the market, you know, that that’s not necessarily a reason in and of itself to love the market. But it does tell you when we’re primed for something to go right or go wrong and move markets. And what we’re seeing right now when I look at the AAII net bull-bear survey data, what we’re seeing there is that a couple weeks ago it hit 30% in favor of the bulls. And that’s been a troublesome spot several times since the financial crisis, including early 2018. We kind of have very kind of muted markets on a 12-month forward basis when you hit that level and it’s actually started to retreat.
So, we got to a worrisome level and it started to come down. The bulls are retreating essentially. And we’re seeing something similar right now actually on the institutional investor side. There we watch CFTC data on positioning in U.S. equity futures by asset managers and that’s a way of saying professional investors who aren’t hedge funds and how they’re investing in the futures market. And it’s a good way to sort of get their broad read on equities.
And what we’re seeing there is that a few weeks ago we got back to pre-pandemic highs essentially, a little bit below them, but those highs were bigger than what we had seen any other time post financial crisis. And we’ve actually started to see them slip over the last few weeks. So, what I’ve seen for both institutions and individuals is sentiment got very stretched and it started to come in a little bit. And it, it’s not entirely clear to me what has sparked that retreat, but we know it’s headed in the wrong direction right now.
TONY ROTH: So, Lori, I want to make sure we explain one point, because you’re operating on an underlying presupposition, if you will, that when investors and particularly professional investors like the market, that it actually bodes negatively for the market, that there’s an inverse correlation between how people are positioning and what the market ends up doing. Can you explain that for us? Because, obviously, it’s a bit counterintuitive.
LORI CALVASINA: Yeah. I think that you have to look at it in terms of levels versus trends. And I think trends at the end of the day end up being an important driver of equity markets. And if you’ve gotten to a point where everybody loves the market and your sentiment indicators are back to highs that typically mark the top, what it tells you is that there’s probably about to be a negative rate of change and things are about to head in the wrong direction. And that’s really, you know, I think it’s that rate of change rather than hitting any particular level that that’s the problem for markets, because I think markets are very, very sensitive to inflection points. And so, it’s really the calling out of that coming inflection point that matters.
TONY ROTH: Thanks, Lori. That’s very helpful. So, let’s get back to the central stream of the conversation around the economy, because it sounds like your take on the equity market and the risks that are present is probably a little bit more to the cautious side than where we are here at Wilmington Trust. We are looking at the outlook and seeing GDP growth this year, probably for the entire year somewhere, on a real basis somewhere in the 7% range or so, maybe just a tad lower than that. But when we look out to next year, we’re probably becoming a bit more constructive and we’re seeing GDP growth probably in the—on a—again, on a real basis maybe as high as the mid-threes. And I know that from talk—from our conversations in the past, Lori, that, you know, you’ve pointed out the pretty nice relationship between GDP growth and how the equity markets do, as well as when you get that GDP growth above a certain level, the value, more cyclically oriented economic areas of the market do better than the more growthy areas.
But maybe just give us some perspective on where you see the economy landing next year once we do start in earnest that tightening process to probably see a little bit higher tax rates for individuals and in some form—some shape or another—for corporations. How do you see the economy settling in next year?
LORI CALVASINA: Well, I think it’s a great question and I think we’re actually pretty similar in terms of our economic outlooks. And I’ll tell you, we have I think maybe it’s at this point 15 different scenarios that we use to inform our target on the S&P 500 and a couple of those are GDP-derived. One of them is looking at 2021 levels that are anticipated of course and the other one is looking at levels for next year.
And the test that looks at next year is actually quite striking, because the test, we call it our GDP range test. But we’ve just gone back and looked at what happens to the S&P 500 in years in which GDP itself was in specific ranges and also what did the market do the year before those specific ranges. So, if markets are a discounting mechanism, what did they do before they anticipated a certain range of GDP?
And the long and short of it is that if you’re in an environment where GDP is expected to be 4% or greater in real terms, on average the S&P 500 is up about 16% in the prior year. So that puts you a little bit north of my 4,325 target, because we’re actually at a 15% number on our target. But you get the idea, right. It kind of points you to a mid-teens type return.
So, you know, we think that longer-term the economic backdrop is actually what gives us a little bit more room to go higher in the market this year, despite the fact that we have some valuation problems and some sentiment problems. And we would very much view any kind of pullback that we get in the market as something that would be very short term in nature and a buying opportunity for the longer-term.
But I’ll just give you one stat, Tony, that I think, you know, kind of sums it all up for me when I kind of think about this trade-off versus rate of change and level when it comes to either the earnings backdrop or the economic backdrop. If you look at what happens early on in a recovery when you come out of a recession in the market, we always had this big pop in earnings growth and these crazy percentage numbers. I mean I think last I checked it was 57% is where 2Q of this year was tracking. So, we call that an early-cycle peak in the earnings growth rate. And the last few cycles, if you look at what’s happened to the stock market, it’s been down very modestly six months later, but it’s been up 12 months later.
So, it tells you that when we get over that hump and we digest this big powerful growth rate markets get a little bit of indigestion from that slowing rate of change, but they get back on track pretty quickly. And I think that’s really how I think about this backdrop right now.
TONY ROTH: Yeah. I think that there’s probably not as much white space between your view and our view. I think that you’re just emphasizing some of the limitations to the upside and we would probably agree with that. So, let’s just talk about—I do want to get to the value growth conversation. But before we do, we can’t finish sort of the economic portion of the conversation without touching on inflation and the whole idea of whether or not inflation’s going to be transitory.
We do think that inflation is going to peak and then the PCE, core PCE is going to come down probably to around 2%, which is just where the Fed wants it, higher than it’s been over the last decade but a nice place to be. And if we’re able to generate the kind of economic growth that you’ve just described and that we, we’ve been predicting, we could be in a Goldilocks kind of scenario for a little while, which does, for us, denote a little bit more upside to equities perhaps as we get into next year.
But where do you see inflation? Most analysts think that is the biggest risk. Where do you see it? Well, let me ask you first. Is it the biggest risk and where do you see inflation going when you look out 12 months?
LORI CALVASINA: So, I don’t think it’s the biggest risk. I think the biggest risk to the market, frankly, is something that’s not on anybody’s radar, something that, you know, hasn’t been digested. And I will tell you, investors have been talking about two things to me all year, corporate taxes going higher and inflation risks. So, I think it’s been pretty well understood in the market and I think a lot of this fierce rotation out of growth and into value has been investors repositioning for higher inflation.
Now, if we just sort of put the positioning issue aside, you know, I, I’m not overly worried about inflation in the here and now either for a couple reasons. And I would say, you know, number one, these inflation pressures, and I agree with you they may be peaking. We’re starting to see breakevens come down a little bit. But if you think about the inflation pressures that are hitting right at this moment in time, that’s a big headwind to margins and profit margins that’s hitting right now. But there are also some incredible tailwinds to margins that are happening right now.
The rate of change in GDP growth is very good historically for corporate profitability. I mean we’re in the middle of big, you know, powerful rates of change in terms of GDP right now. Companies also have a lot of operating leverage. They found a lot of ways to save costs during the pandemic and those are going to be sticky going forward. We’re hearing a lot about that in earnings calls. And companies are also sending the message loud and clear that they are able to pass these increased costs on through pricing. And we also know that consumers, this is something I’ve talked to my economist about a lot, consumers have an enormous amount of savings on the sidelines and are able to absorb these costs.
So, I think that these pressures are hitting, you know, at kind of the best possible time that they could, because both corporations and consumers have the power to deal with this. And look, I would agree with you, Tony. I think a lot of these pressures are going to end up being transitory. I think as the COVID situation improves we will see supply chains improve. I think that once the fall is here and the kids are back in school, a lot of parents will be able to go back to work and that may alleviate some of the labor shortages that we have. I think, you know, a lot of people talk about the unemployment insurance coming off. But I also think that there are family considerations that are feeding a lot of those labor market difficulties these days. It’s going to get better.
TONY ROTH: Yeah. I was just going to say I think that’s a great point. I mean and one big concern around inflation is certainly wage inflation. Typically, that’s not what drives inflation in our economy, but it’s a concern now. And between the roll off of the fiscal stimulus and then the overall environment normalizing from a societal standpoint in the fall, getting kids back into school, and particularly on the side of the spouse or the person that is the childcare provider being able to be freed up and get back into the workplace, the way—the labor wage pressure should probably be contained once we get into the fall. So, I would agree with that.
So now, let’s talk about we have had, and you’ve talk—you’ve alluded to it as I have, we’ve seen a really strong rotation. It hasn’t been consistent. But when you put it all together, it’s been pretty strong for the year to date into the more cyclical value-oriented stocks, the ones that are more immune to increases in interest rates, etcetera. Do you think that’s going to continue? And, if so, how long does that continue and what happens to those big mega-tech growth names that have led the market so consistently over the last decade, really? What happens to those stocks as you look forward?
LORI CALVASINA: So, you know, I want to say I’m not super bearish on tech. I do like value over growth. I think there’s nothing wrong with technology fundamentals. I think it’s just the wrong macro moment in time for that part of the market.
But look, I will say I think this value trade is durable and the growth trade has been fighting back, trying to reclaim its leadership, you know, several different points the last six/nine months and this value shift has been very, very durable since last fall. And as we look through our work, we think the case for value is still very strong and very intact. And I’ll just give you a couple things that are more short-term that we look at.
Valuations, growth still looks overvalued versus value. Growth has come down a bit on a relative basis, but it’s not cheap yet and that’s important because most of the past, you know, 12 years or so growth did look cheap. There was a valuation component to that leadership.
Money flows are chasing the value trade hard and that’s important. You know, we don’t want to always just chase the money flows that we see, right. But there’s been a sea change. Whether I’m looking at small-, mid-cap, value, energy, financials, investors are showing a willingness to buy things that they have ignored for a very long time. So, I think that’s an important psychological shift.
And then, let’s go back to the GDP environment. So, we ran a different GDP test on the style trade, as I call the growth value trade, and we actually found that historically when GDP is coming in above average, that long-term average is about 2.5% in real terms, that’s when value tends to beat growth. It’s only when GDP is falling below 2.5% that growth tends to outperform value. Now, that happens to describe most of the post-financial crisis environment. But consensus for next year is calling for 4% in 2022 and right now 2023 the consensus is calling for 2.4%, right in line with that average. So, I think this trade has one runway into 2022. The jury’s probably still out for 2023.
TONY ROTH: Yeah. I mean we would agree with you. I think that you’ve articulated a view on the value growth trade that is right in line with our views. We look at the market from a more granular factor standpoint, where we’re looking at not just growth and value, but we look at momentum and size and quality stocks, as well as low volatility stocks. And we’ve tried to be—to maintain a market weight in growth while overweighting value and funding that overweight in value by moving to an—to a—an underweight in some of those other areas I mentioned, such as low-volatility stocks and even quality to some degree.
And I think that as we look out on the marketplace or we look at portfolios I should say, we do believe strongly that it’s critical to have growth and those big mega-tech growth platforms that act as the rails to the economy now in your portfolios. But at the same time, from a short-term perspective, a bit of a rotation into some of the more cyclically sensitive areas of the economy that are going to benefit as rates move up, like financials for example and some other areas. So, it sounds like we’re pretty consistent there.
LORI CALVASINA: Yeah. And I’ll just give you one other thought. I was talking to someone at RBC about, you know, sort of the tech side and they were sort of struggling to understand how kind of, you know, kind of some of the challenges in the market, especially on inflation, were bad for growth and tech companies. And I said, look. I said you’re just thinking too specifically. I said there’s nothing wrong with these companies. There’s nothing wrong with their fundamentals. It’s just that their fundamentals aren’t that special anymore.
People wanted secular growth when economic growth was lacking. And now, economic growth is everywhere. So, people are going to the bit and piece of the market that’s cheaper where you can get that growth.
TONY ROTH: Well said. Let me ask you, we often talk about the idea of in today’s environment from a commercial standpoint and from an actual deployment of capital standpoint, we think about passive investing and ETFs and we sort of juxtapose that to what we might call a stock pickers market where the market may not be moving with as much momentum across the entire complex of sectors, but you may see within sectors winners and losers.
How would you characterize the market that we’re in now? Do you think it’s more of a rising tide lifts all boats kind of scenario? Or do you think it’s more of a discerning analysis standpoint where you’re going to have quite a few winners and losers within different areas of the market, different benchmarks, etcetera, and it really pays to have expertise making choices at the security level?
LORI CALVASINA: Look. I think that you definitely are in more of a stock picker’s backdrop these days, because I do think that, you know, look, I think sectors matter, right, and macro is driving the sectors. But at the same time, the stock selection within those sectors does matter a great deal.
So, look. I think, you know, kind of one area you could look at, right, would be like financials and energy. Those are two sectors that I like. You know, one of the things we talk about a lot on my team is I had a former associate who’s now our ESG strategist and we look at the ESG issue quite a bit. And we’re seeing within those two sectors they have traditionally not been loved by ESG funds. But ESG momentum is improving and areas within those sectors that have good ESG momentum, you are seeing some good outperformance there.
But ESG is a very tricky issue, right, to discern. So, you need someone who knows what they’re doing to go in and really figure out what are the best names from that perspective, because I would say energy in particular in the long-term, ESG is something that could be a bit of a headwind. But I also think, you know, issues like the quality trade really require some nimbleness from portfolio managers. You know, you mentioned maybe funding some of the rotation into cyclicals with quality. You know, we think that that makes sense.
You do, typically in the first couple years coming out of a recession, see stocks with lower ROEs, for example, or lower market caps outperform. And I kind of don’t like the quality nomenclature. But I do think that you need managers these days who are willing, not just to go back to the leadership of the past and that’s all they want to do. I think you need to have managers that can, you know, really help you pick out these factors within sectors to navigate things going forward.
TONY ROTH: Yeah. I would agree and that’s what we do. We, when we build portfolios, we really include a blend of active and passive and we tilt it at any given point in time to where we see the opportunity. And right now, we are bit more focused on what we call active share, which is to say more active management because we think that managers have added a real good amount of alpha over the last, well certainly year-to-date. Managers are generally outperforming benchmarks in a lot of the areas of the market and we think that trend is going to continue.
So, Lori, let me end with a topic we, we’ve talked about a bit but haven’t gone deep on, which are taxes. Where do you think the market stands in terms of baking in higher taxes, whether it be corporate taxes, whether it be higher capital gains? It doesn’t seem like the market’s really reacted all that much to those risks. And when we think about the risks that could take down the market, as you’ve pointed out, taxes may be the one wildcard out there that’s not really fully baked into current valuations.
How big of a risk do you think it is to equity values?
LORI CALVASINA: So, I would say taxes are a medium-sized risk. And I would say more on the corporate side than the capital gains side. I know that when I talk to a lot of our financial advisors at RBC they’re very focused on capital gains. But I have seen press reports suggesting that any kind of capital gains increase would be retroactive. So, frankly, there wouldn’t be time to get out before the tax rate takes effect. So, I think that’s actually, you know, a fortunate development if it happens.
But I’d also just say, you know, historically when we’ve looked at how the S&P 500 performs in years where the top rate on capital gains goes up, the returns have actually averaged like 10%–11%. It’s been years where the top rate on capital gains goes down that markets have been flat. And I think that just goes to show that capital gains policy, while, you know, painful for individuals who are affected by it, isn’t really the big driver of the market itself.
Now, I do think the corporate tax matters quite a bit more. And if you look at what happened between 2016 and 2019, stocks that would see a big, the biggest declines in their effective tax rate because of Trump’s tax cuts, they did generally outperform powerfully within the Russell 1,000 and S&P 500 over that time period, and we saw that trend play out within most major sectors.
So, we do think that Trump’s tax cuts were important to getting, you know, some of those big moves that we saw during his presidency. Now, the question is what’s been baked in going forward. I will tell you investors have—I spend some of my meetings half the time talking about corporate taxes. It’s been well-discussed, well-digested. We have been starting to see some modest underperformance of the biggest beneficiaries of Trump’s tax cut since the end of February. There’s probably still more room for them to underperform. But it has already gotten underway and it’s happening within most sectors.
I will say on the earnings front I think this is where it may end up mattering a bit more. I know some of my peers in the strategy community, other strategists have started to take in corporate tax hikes to their S&P 500 EPS numbers. But we do not believe that sell-side analysts who pick stocks have started to bake these into their numbers. And I see this on my own earnings model work. We get to the bottom-up consensus of about 210 for next year if we don’t bake in some sort of hike on corporate taxes. But when we raise the corporate tax rate in our model from 21% to 25%, it takes $10 off our earnings number for next year and that’s probably where the pain would come from, from the individual analysts having to pull their numbers down.
TONY ROTH: Very thorough answer. And, let me just say that our view as it relates to taxes is that increased taxes on the individual side are absolutely consistent with a rising equity market, continuation in the bull market as long as the economy is doing well, which is really, really the key. You can’t have tax rates going up when the economy is in a swoon. But if the economy does well, as we believe it will, then I think that there is room for increases in taxes on the individual side.
Corporate side is more tricky, which is where you’ve placed your emphasis, of course. I think that we are generally in alignment with the idea that there’s probably a little bit of adjustment that needs to happen as we get better information on what kind of corporate tax increase may actually come to fruition.
So, Lori, with that I want to thank you very much. It’s been a great conversation. Let me summarize what I think some key takeaways are, as I always do.
First is that while we’re going to have a big growth bump this year, from an economic standpoint we see the growth being spread out over a little bit longer time period than perhaps we might’ve thought earlier in the year. And so, when we look into next year and we look at real GDP rates, we think that we’re looking at rates that are certainly north of that critical 2%–2.5% range, probably into the higher twos, maybe even to the low threes next year. It’s very consistent with continued strength in the equity markets from these base valuations. So, that’s the first takeaway.
Second takeaway is that, as Lori did just a beautiful job explaining for us, this is really time for the—those value stocks to shine. We continue to believe that those growth mega-cap names are critical to anchor portfolios over the long term. But right now, in the short term, we think if there were ways without giving up the exposure to those big mega-tech growth names to fund a value exposure, a bit of an overweight in value, that that makes a lot of sense and the value trade that’s been driving the market this year is going to continue to run.
And the third thing I would say is as it regards rates and taxes and thinking about things from a macro perspective again here, it seems that there is some risk that the upside could be a little bit limited if rates go higher than we think or if taxes end up moving upwards to greater degrees than we think. And there doesn’t seem to be a lot of risk on the personal side here in terms of taxes and impact on the market. The real risk seems to be around corporate taxes. But the risk may be more theoretical in the sense that there seems to be more of a bipartisan acceptance to increase the personal tax rates but not so much on the corporate tax side. And so, even though there’s probably more downside harm to the market if in fact the corporate taxes were to increase more than expected, that’s the area where there does seem to be a bigger political challenge for the administration to actually bring some success to its agenda and increase those taxes.
So, Lori, I’m going to give you the last word in putting it all together for us.
LORI CALVASINA: So, I would say my one bit of advice is just be willing to do something different. I think there’s still a lot of opportunity in this equity market, some of the new leadership areas. They’ve still got room to run. And I talk to a lot of people whose impulse is to go back to the big trades, the big growth trades that worked for the past decade. I think you need to think outside the box here.
The last thought I’ll leave you with is just these big style rotations from growth to value and vice versa, they tend to happen around recessions. And so, I think this time is going to be no different. I think this is the real shift into value that a lot of people have been looking for a long time.
TONY ROTH: All right. Well, thank you, Lori, so much for your insights. It was really great to have you today and look forward to having you again, hopefully. And I want to thank our listeners for joining us today.
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