Sell America: Framed as trimming US overweights rather than shorting, with rotation toward non-US assets driven by valuation concerns and policy/geopolitical jitters.
Geographic Diversification: Guest urges more openness to overseas exposure, noting Europe’s valuations near long-term averages versus elevated US metrics and last year’s developed ex-US outperformance.
Growth to Value: Historical linkage between US vs. Europe relative performance and growth/value cycles supports a potential shift away from US growth leadership.
AI and Tech Positioning: Institutional investors heavily own AI/tech, and derisking tends to hit the NASDAQ/AI complex harder amid questions on earnings durability and productivity payoffs.
US Outlook: Despite rotation talk, the base case sees strong US GDP and earnings in 2026, with markets often taking a wait-and-see approach to geopolitical risk.
Risk Framework: A “four tiers of fear” drawdown lens contextualizes pullbacks, growth scares, and recoveries, highlighting how policy responses can stabilize markets.
Financials/Banks: Early bank earnings were mixed but macro commentary remained resilient; investment bank-heavy areas look expensive while banks overall appear cheap, with credit card cap and geopolitics as watch items.
Portfolio Implications: If trimming US exposure, investors may first reduce AI/growth leadership and reallocate incrementally to Europe; underperformance need not mean negative returns.
Transcript
We talked about sort of where could things go wrong, headwinds, tailwinds, risks, wild cards, you know, those sorts of issues and one of them was the Cell America trade. >> Hello and welcome to the Baron Streetwise podcast. I'm Jack How and the voice you just heard is Lorie Calvacina. She's the head of US equity strategy at the Royal Bank of Canada and she's talking with us about well investy stuff as you might imagine. What to make of the stock market going forward in 2026 but also this phrase I keep hearing the sell America trade. What's that all about? That's coming [music] up. Listening in is our audio producer Alexis Moore. Hi, Alexis. >> Hey, Jack. >> This is, of course, Davos week. It's the World Economic Forum in Davos, Switzerland. And no, I'm just kidding, folks. That's total rage bait. That That's meant to just get everyone on the edge of their seats with veins bulging from their necks, saying, "You idiot. It's Davos." Yes, I know it's Davos. >> Be careful. The listeners already took issue with you saying Mario Kart. >> What? What? That's wrong. Mario Kart. How are you supposed to say it? I say Mario Kart. >> Oh, Mario. That's the That's the bigger offense. So, this is a short week for me because we had the holiday and I've got to hit the road and do some reporting this week. I know what you're thinking, Jack. You write the Streetwise column. It's two facts, four jokes, and you're out the door. No, it's more to it than that. Sometimes I do actual reporting. So, I'll be on the go this week. And so, we're recording this before [music] President Trump is scheduled to speak at Davos. And I wanted to touch on this phrase I keep hearing and it's the sell America trade. It sounds like a horrible idea for someone who's been watching their S&P 500 returns over the years. US stock returns have been great. The economy looks pretty good. Earnings growth is excellent. Some people when they say sell America, they mean maybe take some profits and shift some money somewhere else where you don't have enough exposure. That's the non-controversial reading. But some people are saying right now, I don't like this or that thing that's going on with policy. It's got me concerned. Should I worry that this is going to negatively affect the US stock market. I think it's risky to make a sweeping judgment like that. We've seen cases where the US stock market has kept charging higher through all sorts of events, but this phrase is getting a lot of play this week. There are some investors who were rattled about Greenland, about Fed independence. So, what about this sell America trade? And what's the latest on the outlook for US markets in 2026? For thoughts on that, I reached out recently to Lori Calviscina. She's the head of US equity strategy at the Royal Bank of Canada. Let's hear part of that conversation. Now, >> if you think about sell America and what does it mean, you know, I think there can be some very literal interpretations, right, of selling my US stock, selling, you know, other asset classes. I think it can also be a question right of shifting allocations and I spend a lot of time talking to long portfolio managers you know often global equity PMs who are running money right and they have an allocation to the US and Europe they may have some money in emerging markets as well so sell America could also be at least in terms of how I think of it in terms of my day-to-day work a question of whether or not do you want to be as overweight the US as you've been in the past that doesn't mean you're taking your US allocation to zero it may mean it's just not as high as it's been in the past or when you're putting incremental money into the market, you might put it elsewhere. >> I'm reminded of I was at a conference once and a guy started out, he addressed the crowd. He said, "My dad taught me two things." He said, "Son, you can never be too dressed up for a business meeting and never sell short America." And I thought, you know, that's kind of a crowd-pleaser, right? Like you're not like, you know, nobody likes that idea. I haven't tested the first one. I haven't worn a tuxedo and tales to a business meeting yet and seen how it went. But we're not talking about se we're certainly not talking about selling short America or betting against America. We're talking about whether you should reduce your allocation in favor of overseas markets or make some some subtle shifts. Is that right? >> Yeah. And look, the the way that we put it in our year- ahead outlook, we sort of have these five things we look at, you know, in terms of GDP, sentiment, all these different models that we have. We have Fed test this year, and those are the things that inform our price target on the S&P 500. And then we talked about sort of where could things go wrong, headwinds, tailwinds, risks, wild cards, you know, those sorts of issues and one of them was the sell America trade. We said people are concerned about valuations in the US. We also found that US and other developed markets like Australia and Canada looked rather elevated if you looked at 20-year zcores, you know, kind of uh levels relative to those 20-year averages. And if you looked at Europe, we only had very modest overvaluation, even though a lot of my European clients thought that their stocks were expensive because of the big run that they had last year. But when we tested that empirically, you know, we saw basically valuations that were pretty darn close to average. And then the other thing we pointed out was that you know we had heard so much about AI jitters in the second half of last year from institutional investors over you know earnings growth rates slowing questions about financing circularity of earnings extended valuations when is this stuff going to pay off in terms of productivity for other companies and you know if you think about that in global terms right if you think about growth versus value in the US and then you look at it of US relative to Europe the relationship hadn't really been intact the last couple of years. So I think people have forgotten about it but historically if you go back over long stretches of time when the US is outperforming Europe growth is usually outperforming value in the US and when value is outperforming within the US in terms of relative to growth then Europe is usually beating the US. So, I was kind of with my global clients at the end of last year sort of saying, you know, you're all telling me that you're on board with this broadening trade and you're all sort of looking for things other than tech and other than these kind of frontline AI sectors, but none of you are telling me that you want to own Europe over the US. This was back in December. And I said, you know, it kind of follows logically that if you believe in this rotation from growth to value, from mag 7 to everything else, you should be thinking a little bit more constructively about Europe on a relative basis. it seems a little odd that you're not. And so now, you know, with all the issues that we've had the last few weeks, we sort of look at all that data on valuation and earnings revision trends, that desire to diversify away from the MAG 7 in the context of what's going on right now. And so it sort of seemed like even if you put all this stuff we've been dealing with the last few weeks aside, that people perhaps should have been thinking a little bit more about diversifying into Europe. I don't know about you, but I I try to steer as clear as I can of of uh getting into politics when discussing finance, but it's just becoming really difficult. You're talking about the the difference between earnings revisions and growth rates and things like that between the US and Europe. But I wonder, are you hearing from clients also who are saying, "Wait a second, what's this about Greenland? What about Fed independence and and all these different things that are kind of policy matters?" And if you have people who are feeling antsy there about what that might mean for the stock market or when the stock market might react badly to those things. Do you hear those sorts of questions? >> So, you know, if I think about sort of my client meetings so far in January and I think, you know, as we're recording this, right, we're in our third, you know, kind of full week of the year at the beginning of it. >> Let's make clear, we're pre- Davos at the time we're talking. In other words, the president's going to give a speech at Davos. We're not there yet. And so maybe there'll be something to come out of that, but we're having this conversation before that. Go ahead. >> If I think about my US-based meetings last week, I would say we spent more of our time having conversations that were similar to what I had talked about back in December in US-based meetings. And that was again going back to the modeling and how does sentiment look and what's the GDP outlook. There's a tremendous amount of optimism in the US on the US economy in 2026. And so, you know, we continued to sort of talk about those issues with institutional investors. There was very little conversation on the Fed. If I think about the, you know, sort of time that was spent on foreign policy and geopolitics is definitely far less than the amount of time in Canada with my global investors up there. But it it came up and it would come up proactively. We we actually wrote about it in our latest weekly. you know, not necessarily the question I got in every single meeting, but one of the more, you know, kind of interesting, thoughtful questions that came up a few times was how do we think markets price and geopolitical risk? Kind of more of a philosophical take on it. And I found myself talking a lot about World War II. This is a chart that we've had in our deck for quite some time, and I actually used this a lot last summer when the Iran situation came up. Just the idea that markets can be patient in parsing geopolitical risk. And it was really not until we saw the invasion of France that markets really plunged in a massive way back then. And it's an extreme example, but I also found myself kind of shying away from that a little bit and talking more about the lessons of co um and what we saw in early 2020. And you know, they're very similar in some ways, but we actually put together a chart and you can see that it wasn't really until the cruise ship off the coast of Japan was quarantined that the market decided to peak. And then we had the lockdown in Italy. And then we had the CDC on television warning us about society shutting down essentially even though there had been several months of frankly red flags if you go back and look at the timeline. Um and the market just sailed past it, kept moving up. And what we told investors last week was sometimes markets just take a wait and see approach. Doesn't mean that it's wrong to do that, but says sometimes just need to see how things unfold before reacting. And those were more extreme examples, but this was also essentially, you know, kind of how the market behaved around the Iran situation last summer as well. >> Thank you, Lori. Let's take a quick break and we'll be back with more of my conversation. Welcome back and happy Davos week. We've talked about Davos. I think everybody knows, right? This time of year, the World Economic Forum, they have a big meeting. Business leaders, country leaders, rich people, people who like to be near rich people. They all gather from around the world in a snowy, not really the least bit convenient to reach town in Switzerland called Davos with tiny overpriced hotel rooms and actually steep kind of windy streets that get pretty darn slippery. And there are meetings, big conferences and talks, breakaway meetings. A lot of the week is honestly spent trying not to fall on the ice. You can tell the Davos veterans because they'll be wearing like suits but big clumpy boots. If you're wearing leather sold dress shoes, you're definitely a first- timer. Okay, that's Davos. By the time you're hearing this episode, you've probably seen some headlines about what the president spoke about at Davos and how that was received by leaders of other countries and the stock market. We had a wobbly market early in the week at the time of this recording. So, the subject of this episode is what about all these people who say it's time to sell America or take profits in America? Is it a bad idea? Can the market continue to charge higher? If you're going to shift money out of your S&P 500 fund, what should you be buying? Let's jump back into my conversation about that stuff and more with RBC's Lori Calvacina. It's fascinating. Uh there have been some extraordinary things that the market has continued to climb through and the outlook for economic growth in the US seems strong. Uh and and the outlook for earnings growth is quite strong. So for investors, I I sometimes feel like, tell me if this makes any sense, I sometimes feel like maybe we're living in an S&P 500. In other words, if I think back to spring 2025 when the when the we had news of the new round of tariffs, um there was a moment when the stock market really didn't like it. The stock market really wobbled. And then I feel like there was a you know among policy makers with with the administration there was a little bit of okay you know we there could be a pause there can be it was it was the only time I really saw some some sort of flexibility. So it makes me feel now like as long as the stock market is charging higher then policy makers will you know continue on with what they're doing but no one wants to see people lose money in their 401ks wants to see the stock market tank. If the stock market tanks, I feel like maybe policy makers would say, "Oh, hold on. Let's take a second look here and and cool down a little bit and see about, you know, I don't know what you call that, some kind of put, a, you know, a Trump put, an administration put, something like that. What do you think of that theory of mine? Do you think that they watch the stock market closely and really want that to shine?" You know, I I don't want to speculate on on what they're paying attention to and what they're not paying attention to, but I can tell you in the tariff discussion in 2025, we had a lot of interesting conversations with institutional investors and hedge funds in particular about that event. And if you looked back in sort of, you know, December of 2024, I always go to Europe in December after my outlooks out and it's just a great way to sort of kick off the the year ahead. And in December 2024, European investors were very concerned and very alarmed at valuations in the US, positioning in the US. And I heard repeatedly after a week of marketing on the continent that that those investors thought that the US was being too complacent on tariffs. Um and then you know kind of move back into the US in January and February and and I'm talking to investors here and you know hear more of the idea that tariffs are not really going to happen and if the market goes down a little bit the administration is going to pull back and there was kind of a view right that it would be like a 10% draw down and then that would be enough and of course we went down 18.9%. And the thing I I you know I kind of formalized a framework that I've used for a long time in terms of thinking about drawdowns during that period because of all those conversations and we call it our four tiers of fear. Now I did scare my husband to death one night when I told him this and joked that I had to take away his passwords to the children's college account. So just bear with me. I'm not trying to scare you. [laughter] >> This sounds serious. >> As I told him, you know, I'm trying to help you understand the anatomy of draw downs to give you comfort, right? to to to you know, not to panic you, right? To to keep you calm. >> I'm ready. >> And and so the way we think about tier one um is we call it a garden variety pullback, a 5 to 10% draw down. Those are no big deal. We had one of these, you know, in I think in August of 2024 around the Japanese carry trade unwind. We had one in 2023 when 10ear bond yields were moving up. Um we we get these pretty regularly to be honest and they don't feel great at the time but usually you know it doesn't get any worse than 10%. Now if you kind of look at the post GFC history if we go past 10% and I don't mean like 10.3 we've had a few of those right but if it's you know meaningfully beyond 10% you tend to go to 14 to 20. And so what's a 14 to 20% draw down? We call those tier 2 growth scares. And this is really, you know, sort of informed by my experience post GFC. And, you know, we think of these as 2010, 2011, 2015, 2016, 2018. Um, and then the tariff uh episode of of 2025 would also fall into this category. And in all of those markets fell peak to trough between for the most recent most recent high um fell 14 to 20%. Um, and you had sort of a very, you know, kind of unknown situation emerge, right? The US debt downgrade, the European sovereign debt crisis. 2018, uh, was the first trade war and fears of Fed policy error. 2015, 2016 was maybe a little bit more traditional in that it was an industrial recession. We didn't have an actual recession, but we had weakness in the industrial and energy economy and broadly things were propped up by consumers. Um, and then if you looked at at 2025, right, we had sort of the second trade war and the liberation day tariffs. What we saw in a number of those, you know, thinking specifically about 2018, um, thinking about the tariff episode, um, you had basically, you know, sort of a whiff of panic that came into the air when you got into the teens. And so, you know, was it that policy makers were watching the market? I don't know if it was that cute, you know, and if it was, okay, we went down a certain amount, but it it it's really just having lived through all of those, right, when you got into the teens, there was a real whiff of panic that something systemic was unfolding that couldn't be stopped easily or that we were going to have a recession or a major crisis. >> Sometimes people think, I hear people say, "Well, if the market goes down that much, don't I've seen it before. I hear it always comes back, I'm just going to hold. I'm just going to be fine." And I think that maybe younger investors don't connect the dots on when something like that happens, it can turn into you holding on to your job for dear life and hoping there's not going to be layoffs because that that can change things in a hurry about your ability to ride out that downturn, things like that. >> Exactly. And you know, and I think we did in 2025, right, we had a clear policymaker response, right? I would argue in 2018 you saw some pivots from the Fed. that I think you got some deescalation of the trade war late in the year as well, though the market continued to go down after that. But you did have some policymaker responses in that as well. I was on maternity leave during the 2015 2016 one. So I don't quite remember the anatomy of that one as well. But even if you look at COVID, right, and and this was in this recent chart. This was actually what we would put into sort of a tier three recession or major war. We priced in by the way in CO a classic recession. I think it was something like a 34% draw down and your median and average recession draw down or like 27 and 33%. But you you know I was just sort of you know struck when we were putting the timeline around the COVID drop together how much policymaker response did come out just as the market was making that bottom and even afterwards right to to sort of stabilize things. So, you know, I I I do think that you have just this genuine fear that emerges in those tier 2 growth scares. And what we saw with the tariff situation, right, was that markets bounced back very, very quickly. It was the fastest recovery off of a growth scare. All those examples that I mentioned, much much faster, much quicker, more powerful recovery than we'd seen in any of the other ones. >> Tier four, I guess, has to be like a biblical type of, you know, like reigning frogs or something. I can't remember if that was one of the plagues or not, but something along along those lines is a tier four like but probably the the kind of thing we've only had a couple of times in history. Is that the idea? >> So tier four, you know, we didn't go back and study the entire history of the stock market, but I started in the business back in 2000. So, you know, this was sort of kind of more of Lor's personal reflections and what she lived through. But, you know, we would classify that as roughly 50% which was the tech bubble draw down and uh the GFC draw down. and one was a little less and one was a little worse. So, if you're kind of making up these rules of thumb, right, the market losing half of its value is what we saw in those two episodes. >> Okay, you've got my attention. Now, this is not this is not your base case, as they say in your business. You see the US stock market, as you said earlier, moving higher. There's good growth there. What should we do? Let's say that I am someone who I've got my mix of stocks and bonds sorted out, whether it's a 6040 or 7030 or what have you, but in my stock portion, I'm just all in on the S&P 500. So, I want to know what should I how should I dress this up? What should I do differently? I I guess you would say some some overseas holdings, but also is it a preference for value? What what kind of tilts should I try to work in for for the year ahead or the the coming years? This is something we said, I believe on January 12th in our weekly when, you know, we were starting to see some of these issues perk up, but the sell America trade, right, seems to just sort of feed into the rotation argument that everybody wanted to make anyway. So if you're thinking about, you know, looking within US equities, we actually said we thought a renition of the sell America trade and we sort of, you know, saw this Monday morning, right, where the Fed stuff came out and futures were briefly down and the market was briefly down, you were seeing the NASDAQ complex getting hit harder. And so we we said, you know, when you derisk, right, you sell what you own. And what I know for a fact from sort of talking to European-based investors and Canadian-based investors for many years is that what they have typically wanted to do when I go over and see them in December and I go up to Canada several times a year throughout the year, what they always wanted to do was talk about the growth trade and talk about tech. And they wanted to talk about AI in recent years. And if you think around the tariff issue last year, 2025, I remember I was up in Canada in both February and May. And in February, there was a lot of angst, you know, over US exposure. And we probably spent, you know, most of hour-long meetings talking about geopolitics and tariffs and trade and those sorts of issues. By the time I went back in May, we were still talking about those things, but we were spending at least half the meeting talking about AI and American productivity. My sort of view on this is and I think we saw it you know in some of the price action if you're you know kind of pulling some US exposure off the table I do think it hits you know kind of that growthier AIdriven part of the market a bit more. >> It just occurs to me the phrase sell America is just too jarring to my ears. But if we call it the take profits in America rotation it sounds a little more pleasing. >> You know the way I've generally referred to it is the geographical diversification trade. And what we saw I think last year again 2025 was just more openness and more willingness of global investors to diversify a little bit more outside the US. And >> last year developed market ex US developed markets outdid the US if if I've got that right. Do you expect that same thing might happen again in 2026? Do you have a a forecast on that? >> You know we don't forecast that. We've only talked about it in terms of a potential, you know, sort of headwind to US performance. And, you know, the US did lag last year, right? But still had, you know, what for all intents and purposes was a very, very strong year. That surprised a lot of people, including myself, in terms of, you know, how strong the numbers ended up being at the end of the year. And I think that's what's tricky about this business, right? People talk about outperform, underperform. Underperform doesn't necessarily mean go down. This is a lot of great information that you've given us and I appreciate your time. Is there anything else out there that we need to know to achieve investment glory in the year ahead? What have I not been smart enough to ask you about? You won't hurt my feelings by telling me. I'm a I'm a columnist. I don't have feelings. So, go go ahead and lay it on me. What what should I have asked you, but I didn't. >> Well, you know, we haven't talked that much about earnings. And you know what we said last week, you know, and I think in our weekly was reporting season gives investors the opportunity to kind of refocus on the micro and maybe put the macro aside. And we're, you know, it's kind of a weird start to reporting season. We had a very light week last week. This week is pretty light. It's going to pick up next week. So maybe, you know, this will change. We're still kind of getting jerked around by the macro right now. But I would say sort of week one with the banks, the results were mixed, the price action was mixed, but if you read the commentary from the banks about the economy and the economic backdrop, it still sounded very, very good. There were really just kind of no red flags. You know, there are obviously these issues with the credit card interest rate cap. There are some concerns about geopolitics that were coming through. What we told people going in was that the kind of part the industry that houses the investment banks was looking expensive. it was really kind of the only expensive part of the financial sector that we saw. The kind of banks themselves, which are a different category, actually still look really cheap. So, we weren't overly alarmed by kind of the choppy price reaction we saw from a few of the companies last week. But I think maybe, you know, some something that got lost in sort of the geopolitical discussion and this credit card interest rate cap discussion was that the banks were still pointing a picture, you know, of a very very resilient economy underneath the surface. >> Thank you, Lori. and thank all of you for listening. We've reached a part of the podcast I like to call outsies. It's where I first invite you to send in a question if you have one. If you'd like it played and answered on the podcast, send it in. Could be in a future episode. Just use the voice memo app and send it to jack.how. That's h o u gbear.com. Alexis Moore is our producer. You can subscribe to the podcast at apple pod. Are there still people out there who don't know, by the way, that you can subscribe to? You can. They've got this new thing. You can subscribe to podcasts now, wherever you listen. If you listen on Apple, you can write us a review. See you next week.
“Sell America?” Careful there. | Barron's Streetwise
Summary
Transcript
We talked about sort of where could things go wrong, headwinds, tailwinds, risks, wild cards, you know, those sorts of issues and one of them was the Cell America trade. >> Hello and welcome to the Baron Streetwise podcast. I'm Jack How and the voice you just heard is Lorie Calvacina. She's the head of US equity strategy at the Royal Bank of Canada and she's talking with us about well investy stuff as you might imagine. What to make of the stock market going forward in 2026 but also this phrase I keep hearing the sell America trade. What's that all about? That's coming [music] up. Listening in is our audio producer Alexis Moore. Hi, Alexis. >> Hey, Jack. >> This is, of course, Davos week. It's the World Economic Forum in Davos, Switzerland. And no, I'm just kidding, folks. That's total rage bait. That That's meant to just get everyone on the edge of their seats with veins bulging from their necks, saying, "You idiot. It's Davos." Yes, I know it's Davos. >> Be careful. The listeners already took issue with you saying Mario Kart. >> What? What? That's wrong. Mario Kart. How are you supposed to say it? I say Mario Kart. >> Oh, Mario. That's the That's the bigger offense. So, this is a short week for me because we had the holiday and I've got to hit the road and do some reporting this week. I know what you're thinking, Jack. You write the Streetwise column. It's two facts, four jokes, and you're out the door. No, it's more to it than that. Sometimes I do actual reporting. So, I'll be on the go this week. And so, we're recording this before [music] President Trump is scheduled to speak at Davos. And I wanted to touch on this phrase I keep hearing and it's the sell America trade. It sounds like a horrible idea for someone who's been watching their S&P 500 returns over the years. US stock returns have been great. The economy looks pretty good. Earnings growth is excellent. Some people when they say sell America, they mean maybe take some profits and shift some money somewhere else where you don't have enough exposure. That's the non-controversial reading. But some people are saying right now, I don't like this or that thing that's going on with policy. It's got me concerned. Should I worry that this is going to negatively affect the US stock market. I think it's risky to make a sweeping judgment like that. We've seen cases where the US stock market has kept charging higher through all sorts of events, but this phrase is getting a lot of play this week. There are some investors who were rattled about Greenland, about Fed independence. So, what about this sell America trade? And what's the latest on the outlook for US markets in 2026? For thoughts on that, I reached out recently to Lori Calviscina. She's the head of US equity strategy at the Royal Bank of Canada. Let's hear part of that conversation. Now, >> if you think about sell America and what does it mean, you know, I think there can be some very literal interpretations, right, of selling my US stock, selling, you know, other asset classes. I think it can also be a question right of shifting allocations and I spend a lot of time talking to long portfolio managers you know often global equity PMs who are running money right and they have an allocation to the US and Europe they may have some money in emerging markets as well so sell America could also be at least in terms of how I think of it in terms of my day-to-day work a question of whether or not do you want to be as overweight the US as you've been in the past that doesn't mean you're taking your US allocation to zero it may mean it's just not as high as it's been in the past or when you're putting incremental money into the market, you might put it elsewhere. >> I'm reminded of I was at a conference once and a guy started out, he addressed the crowd. He said, "My dad taught me two things." He said, "Son, you can never be too dressed up for a business meeting and never sell short America." And I thought, you know, that's kind of a crowd-pleaser, right? Like you're not like, you know, nobody likes that idea. I haven't tested the first one. I haven't worn a tuxedo and tales to a business meeting yet and seen how it went. But we're not talking about se we're certainly not talking about selling short America or betting against America. We're talking about whether you should reduce your allocation in favor of overseas markets or make some some subtle shifts. Is that right? >> Yeah. And look, the the way that we put it in our year- ahead outlook, we sort of have these five things we look at, you know, in terms of GDP, sentiment, all these different models that we have. We have Fed test this year, and those are the things that inform our price target on the S&P 500. And then we talked about sort of where could things go wrong, headwinds, tailwinds, risks, wild cards, you know, those sorts of issues and one of them was the sell America trade. We said people are concerned about valuations in the US. We also found that US and other developed markets like Australia and Canada looked rather elevated if you looked at 20-year zcores, you know, kind of uh levels relative to those 20-year averages. And if you looked at Europe, we only had very modest overvaluation, even though a lot of my European clients thought that their stocks were expensive because of the big run that they had last year. But when we tested that empirically, you know, we saw basically valuations that were pretty darn close to average. And then the other thing we pointed out was that you know we had heard so much about AI jitters in the second half of last year from institutional investors over you know earnings growth rates slowing questions about financing circularity of earnings extended valuations when is this stuff going to pay off in terms of productivity for other companies and you know if you think about that in global terms right if you think about growth versus value in the US and then you look at it of US relative to Europe the relationship hadn't really been intact the last couple of years. So I think people have forgotten about it but historically if you go back over long stretches of time when the US is outperforming Europe growth is usually outperforming value in the US and when value is outperforming within the US in terms of relative to growth then Europe is usually beating the US. So, I was kind of with my global clients at the end of last year sort of saying, you know, you're all telling me that you're on board with this broadening trade and you're all sort of looking for things other than tech and other than these kind of frontline AI sectors, but none of you are telling me that you want to own Europe over the US. This was back in December. And I said, you know, it kind of follows logically that if you believe in this rotation from growth to value, from mag 7 to everything else, you should be thinking a little bit more constructively about Europe on a relative basis. it seems a little odd that you're not. And so now, you know, with all the issues that we've had the last few weeks, we sort of look at all that data on valuation and earnings revision trends, that desire to diversify away from the MAG 7 in the context of what's going on right now. And so it sort of seemed like even if you put all this stuff we've been dealing with the last few weeks aside, that people perhaps should have been thinking a little bit more about diversifying into Europe. I don't know about you, but I I try to steer as clear as I can of of uh getting into politics when discussing finance, but it's just becoming really difficult. You're talking about the the difference between earnings revisions and growth rates and things like that between the US and Europe. But I wonder, are you hearing from clients also who are saying, "Wait a second, what's this about Greenland? What about Fed independence and and all these different things that are kind of policy matters?" And if you have people who are feeling antsy there about what that might mean for the stock market or when the stock market might react badly to those things. Do you hear those sorts of questions? >> So, you know, if I think about sort of my client meetings so far in January and I think, you know, as we're recording this, right, we're in our third, you know, kind of full week of the year at the beginning of it. >> Let's make clear, we're pre- Davos at the time we're talking. In other words, the president's going to give a speech at Davos. We're not there yet. And so maybe there'll be something to come out of that, but we're having this conversation before that. Go ahead. >> If I think about my US-based meetings last week, I would say we spent more of our time having conversations that were similar to what I had talked about back in December in US-based meetings. And that was again going back to the modeling and how does sentiment look and what's the GDP outlook. There's a tremendous amount of optimism in the US on the US economy in 2026. And so, you know, we continued to sort of talk about those issues with institutional investors. There was very little conversation on the Fed. If I think about the, you know, sort of time that was spent on foreign policy and geopolitics is definitely far less than the amount of time in Canada with my global investors up there. But it it came up and it would come up proactively. We we actually wrote about it in our latest weekly. you know, not necessarily the question I got in every single meeting, but one of the more, you know, kind of interesting, thoughtful questions that came up a few times was how do we think markets price and geopolitical risk? Kind of more of a philosophical take on it. And I found myself talking a lot about World War II. This is a chart that we've had in our deck for quite some time, and I actually used this a lot last summer when the Iran situation came up. Just the idea that markets can be patient in parsing geopolitical risk. And it was really not until we saw the invasion of France that markets really plunged in a massive way back then. And it's an extreme example, but I also found myself kind of shying away from that a little bit and talking more about the lessons of co um and what we saw in early 2020. And you know, they're very similar in some ways, but we actually put together a chart and you can see that it wasn't really until the cruise ship off the coast of Japan was quarantined that the market decided to peak. And then we had the lockdown in Italy. And then we had the CDC on television warning us about society shutting down essentially even though there had been several months of frankly red flags if you go back and look at the timeline. Um and the market just sailed past it, kept moving up. And what we told investors last week was sometimes markets just take a wait and see approach. Doesn't mean that it's wrong to do that, but says sometimes just need to see how things unfold before reacting. And those were more extreme examples, but this was also essentially, you know, kind of how the market behaved around the Iran situation last summer as well. >> Thank you, Lori. Let's take a quick break and we'll be back with more of my conversation. Welcome back and happy Davos week. We've talked about Davos. I think everybody knows, right? This time of year, the World Economic Forum, they have a big meeting. Business leaders, country leaders, rich people, people who like to be near rich people. They all gather from around the world in a snowy, not really the least bit convenient to reach town in Switzerland called Davos with tiny overpriced hotel rooms and actually steep kind of windy streets that get pretty darn slippery. And there are meetings, big conferences and talks, breakaway meetings. A lot of the week is honestly spent trying not to fall on the ice. You can tell the Davos veterans because they'll be wearing like suits but big clumpy boots. If you're wearing leather sold dress shoes, you're definitely a first- timer. Okay, that's Davos. By the time you're hearing this episode, you've probably seen some headlines about what the president spoke about at Davos and how that was received by leaders of other countries and the stock market. We had a wobbly market early in the week at the time of this recording. So, the subject of this episode is what about all these people who say it's time to sell America or take profits in America? Is it a bad idea? Can the market continue to charge higher? If you're going to shift money out of your S&P 500 fund, what should you be buying? Let's jump back into my conversation about that stuff and more with RBC's Lori Calvacina. It's fascinating. Uh there have been some extraordinary things that the market has continued to climb through and the outlook for economic growth in the US seems strong. Uh and and the outlook for earnings growth is quite strong. So for investors, I I sometimes feel like, tell me if this makes any sense, I sometimes feel like maybe we're living in an S&P 500. In other words, if I think back to spring 2025 when the when the we had news of the new round of tariffs, um there was a moment when the stock market really didn't like it. The stock market really wobbled. And then I feel like there was a you know among policy makers with with the administration there was a little bit of okay you know we there could be a pause there can be it was it was the only time I really saw some some sort of flexibility. So it makes me feel now like as long as the stock market is charging higher then policy makers will you know continue on with what they're doing but no one wants to see people lose money in their 401ks wants to see the stock market tank. If the stock market tanks, I feel like maybe policy makers would say, "Oh, hold on. Let's take a second look here and and cool down a little bit and see about, you know, I don't know what you call that, some kind of put, a, you know, a Trump put, an administration put, something like that. What do you think of that theory of mine? Do you think that they watch the stock market closely and really want that to shine?" You know, I I don't want to speculate on on what they're paying attention to and what they're not paying attention to, but I can tell you in the tariff discussion in 2025, we had a lot of interesting conversations with institutional investors and hedge funds in particular about that event. And if you looked back in sort of, you know, December of 2024, I always go to Europe in December after my outlooks out and it's just a great way to sort of kick off the the year ahead. And in December 2024, European investors were very concerned and very alarmed at valuations in the US, positioning in the US. And I heard repeatedly after a week of marketing on the continent that that those investors thought that the US was being too complacent on tariffs. Um and then you know kind of move back into the US in January and February and and I'm talking to investors here and you know hear more of the idea that tariffs are not really going to happen and if the market goes down a little bit the administration is going to pull back and there was kind of a view right that it would be like a 10% draw down and then that would be enough and of course we went down 18.9%. And the thing I I you know I kind of formalized a framework that I've used for a long time in terms of thinking about drawdowns during that period because of all those conversations and we call it our four tiers of fear. Now I did scare my husband to death one night when I told him this and joked that I had to take away his passwords to the children's college account. So just bear with me. I'm not trying to scare you. [laughter] >> This sounds serious. >> As I told him, you know, I'm trying to help you understand the anatomy of draw downs to give you comfort, right? to to to you know, not to panic you, right? To to keep you calm. >> I'm ready. >> And and so the way we think about tier one um is we call it a garden variety pullback, a 5 to 10% draw down. Those are no big deal. We had one of these, you know, in I think in August of 2024 around the Japanese carry trade unwind. We had one in 2023 when 10ear bond yields were moving up. Um we we get these pretty regularly to be honest and they don't feel great at the time but usually you know it doesn't get any worse than 10%. Now if you kind of look at the post GFC history if we go past 10% and I don't mean like 10.3 we've had a few of those right but if it's you know meaningfully beyond 10% you tend to go to 14 to 20. And so what's a 14 to 20% draw down? We call those tier 2 growth scares. And this is really, you know, sort of informed by my experience post GFC. And, you know, we think of these as 2010, 2011, 2015, 2016, 2018. Um, and then the tariff uh episode of of 2025 would also fall into this category. And in all of those markets fell peak to trough between for the most recent most recent high um fell 14 to 20%. Um, and you had sort of a very, you know, kind of unknown situation emerge, right? The US debt downgrade, the European sovereign debt crisis. 2018, uh, was the first trade war and fears of Fed policy error. 2015, 2016 was maybe a little bit more traditional in that it was an industrial recession. We didn't have an actual recession, but we had weakness in the industrial and energy economy and broadly things were propped up by consumers. Um, and then if you looked at at 2025, right, we had sort of the second trade war and the liberation day tariffs. What we saw in a number of those, you know, thinking specifically about 2018, um, thinking about the tariff episode, um, you had basically, you know, sort of a whiff of panic that came into the air when you got into the teens. And so, you know, was it that policy makers were watching the market? I don't know if it was that cute, you know, and if it was, okay, we went down a certain amount, but it it it's really just having lived through all of those, right, when you got into the teens, there was a real whiff of panic that something systemic was unfolding that couldn't be stopped easily or that we were going to have a recession or a major crisis. >> Sometimes people think, I hear people say, "Well, if the market goes down that much, don't I've seen it before. I hear it always comes back, I'm just going to hold. I'm just going to be fine." And I think that maybe younger investors don't connect the dots on when something like that happens, it can turn into you holding on to your job for dear life and hoping there's not going to be layoffs because that that can change things in a hurry about your ability to ride out that downturn, things like that. >> Exactly. And you know, and I think we did in 2025, right, we had a clear policymaker response, right? I would argue in 2018 you saw some pivots from the Fed. that I think you got some deescalation of the trade war late in the year as well, though the market continued to go down after that. But you did have some policymaker responses in that as well. I was on maternity leave during the 2015 2016 one. So I don't quite remember the anatomy of that one as well. But even if you look at COVID, right, and and this was in this recent chart. This was actually what we would put into sort of a tier three recession or major war. We priced in by the way in CO a classic recession. I think it was something like a 34% draw down and your median and average recession draw down or like 27 and 33%. But you you know I was just sort of you know struck when we were putting the timeline around the COVID drop together how much policymaker response did come out just as the market was making that bottom and even afterwards right to to sort of stabilize things. So, you know, I I I do think that you have just this genuine fear that emerges in those tier 2 growth scares. And what we saw with the tariff situation, right, was that markets bounced back very, very quickly. It was the fastest recovery off of a growth scare. All those examples that I mentioned, much much faster, much quicker, more powerful recovery than we'd seen in any of the other ones. >> Tier four, I guess, has to be like a biblical type of, you know, like reigning frogs or something. I can't remember if that was one of the plagues or not, but something along along those lines is a tier four like but probably the the kind of thing we've only had a couple of times in history. Is that the idea? >> So tier four, you know, we didn't go back and study the entire history of the stock market, but I started in the business back in 2000. So, you know, this was sort of kind of more of Lor's personal reflections and what she lived through. But, you know, we would classify that as roughly 50% which was the tech bubble draw down and uh the GFC draw down. and one was a little less and one was a little worse. So, if you're kind of making up these rules of thumb, right, the market losing half of its value is what we saw in those two episodes. >> Okay, you've got my attention. Now, this is not this is not your base case, as they say in your business. You see the US stock market, as you said earlier, moving higher. There's good growth there. What should we do? Let's say that I am someone who I've got my mix of stocks and bonds sorted out, whether it's a 6040 or 7030 or what have you, but in my stock portion, I'm just all in on the S&P 500. So, I want to know what should I how should I dress this up? What should I do differently? I I guess you would say some some overseas holdings, but also is it a preference for value? What what kind of tilts should I try to work in for for the year ahead or the the coming years? This is something we said, I believe on January 12th in our weekly when, you know, we were starting to see some of these issues perk up, but the sell America trade, right, seems to just sort of feed into the rotation argument that everybody wanted to make anyway. So if you're thinking about, you know, looking within US equities, we actually said we thought a renition of the sell America trade and we sort of, you know, saw this Monday morning, right, where the Fed stuff came out and futures were briefly down and the market was briefly down, you were seeing the NASDAQ complex getting hit harder. And so we we said, you know, when you derisk, right, you sell what you own. And what I know for a fact from sort of talking to European-based investors and Canadian-based investors for many years is that what they have typically wanted to do when I go over and see them in December and I go up to Canada several times a year throughout the year, what they always wanted to do was talk about the growth trade and talk about tech. And they wanted to talk about AI in recent years. And if you think around the tariff issue last year, 2025, I remember I was up in Canada in both February and May. And in February, there was a lot of angst, you know, over US exposure. And we probably spent, you know, most of hour-long meetings talking about geopolitics and tariffs and trade and those sorts of issues. By the time I went back in May, we were still talking about those things, but we were spending at least half the meeting talking about AI and American productivity. My sort of view on this is and I think we saw it you know in some of the price action if you're you know kind of pulling some US exposure off the table I do think it hits you know kind of that growthier AIdriven part of the market a bit more. >> It just occurs to me the phrase sell America is just too jarring to my ears. But if we call it the take profits in America rotation it sounds a little more pleasing. >> You know the way I've generally referred to it is the geographical diversification trade. And what we saw I think last year again 2025 was just more openness and more willingness of global investors to diversify a little bit more outside the US. And >> last year developed market ex US developed markets outdid the US if if I've got that right. Do you expect that same thing might happen again in 2026? Do you have a a forecast on that? >> You know we don't forecast that. We've only talked about it in terms of a potential, you know, sort of headwind to US performance. And, you know, the US did lag last year, right? But still had, you know, what for all intents and purposes was a very, very strong year. That surprised a lot of people, including myself, in terms of, you know, how strong the numbers ended up being at the end of the year. And I think that's what's tricky about this business, right? People talk about outperform, underperform. Underperform doesn't necessarily mean go down. This is a lot of great information that you've given us and I appreciate your time. Is there anything else out there that we need to know to achieve investment glory in the year ahead? What have I not been smart enough to ask you about? You won't hurt my feelings by telling me. I'm a I'm a columnist. I don't have feelings. So, go go ahead and lay it on me. What what should I have asked you, but I didn't. >> Well, you know, we haven't talked that much about earnings. And you know what we said last week, you know, and I think in our weekly was reporting season gives investors the opportunity to kind of refocus on the micro and maybe put the macro aside. And we're, you know, it's kind of a weird start to reporting season. We had a very light week last week. This week is pretty light. It's going to pick up next week. So maybe, you know, this will change. We're still kind of getting jerked around by the macro right now. But I would say sort of week one with the banks, the results were mixed, the price action was mixed, but if you read the commentary from the banks about the economy and the economic backdrop, it still sounded very, very good. There were really just kind of no red flags. You know, there are obviously these issues with the credit card interest rate cap. There are some concerns about geopolitics that were coming through. What we told people going in was that the kind of part the industry that houses the investment banks was looking expensive. it was really kind of the only expensive part of the financial sector that we saw. The kind of banks themselves, which are a different category, actually still look really cheap. So, we weren't overly alarmed by kind of the choppy price reaction we saw from a few of the companies last week. But I think maybe, you know, some something that got lost in sort of the geopolitical discussion and this credit card interest rate cap discussion was that the banks were still pointing a picture, you know, of a very very resilient economy underneath the surface. >> Thank you, Lori. and thank all of you for listening. We've reached a part of the podcast I like to call outsies. It's where I first invite you to send in a question if you have one. If you'd like it played and answered on the podcast, send it in. Could be in a future episode. Just use the voice memo app and send it to jack.how. That's h o u gbear.com. Alexis Moore is our producer. You can subscribe to the podcast at apple pod. Are there still people out there who don't know, by the way, that you can subscribe to? You can. They've got this new thing. You can subscribe to podcasts now, wherever you listen. If you listen on Apple, you can write us a review. See you next week.