RBC's Lori Calvasina Sees S&P 500 Upside Despite Fed Risk

Fresh Middle East violence put pressure on stocks and bonds, with the S&P 500 wavering after its longest weekly advance since May. Brent rose to around $89 and Treasury 30-year yields jumped to the highest since 2007, raising concern that inflationary pressures could push the Fed toward higher rates. Separately, chipmakers rallied as Anthropic PBC’s revenue surge reinforced AI-trade expectations, but the broader risk tone remains cautious amid Fed policy uncertainty and valuation concerns.

Analysis

The market is being forced to price a more stagflationary mix: higher oil, higher term premium, and a Fed that can’t look through either if the moves persist. That combination is usually hostile to multiple expansion, especially for the most rate-sensitive parts of the tape — unprofitable software, housing, utilities, REITs, and other long-duration cash-flow stories — even if the headline indices still look resilient for a few sessions.

The immediate winners are upstream energy and defense/industrial supply chain names with energy pass-through power; the less obvious losers are airlines, parcel/logistics, chemicals, and consumer discretionary businesses with weak pricing power. A Brent move toward the high-$80s is manageable on a one-day basis, but if it holds for 3-6 weeks it starts to bleed into margin guidance and inflation breakevens, which can lift real yields further and compress equity multiples broadly.

AI remains the one pocket of growth that can still attract capital in a rising-rate tape because it has tangible capex and revenue momentum, but the second-order effect is that the market may increasingly demand proof of monetization rather than pay for narrative. That favors the highest-quality infrastructure beneficiaries over thematic baskets: compute, networking, and power/hardware names with near-term order visibility should outperform pure software exposure. The contrarian risk is that the market is underestimating how much recent equity strength depended on easing financial conditions; if 30-year yields keep making new highs, the rally can narrow sharply even without a macro recession shock.

The right way to frame this is not a wholesale risk-off call, but a relative-value rotation: own inflation/commodity sensitivity and short duration. The thesis is falsified if Brent rolls back below the low-$80s and long rates retrace their breakout, which would restore the multiple tailwind and reduce pressure on the Fed path.

Key Decisions for Investors

• Go long XLE vs short IWM for 1-3 months: oil-linked cash flows should outperform small caps if rates stay sticky and inflation expectations reprice higher; stop if Brent loses the breakout and 10Y/30Y yields reverse lower for several sessions.
• Initiate a short TLT / long TBT view into the next CPI and Fed window: the 30-year yield breakout has better follow-through than the stock market is pricing; trim if real yields fall back and the curve bull-steepens on growth fears rather than inflation.
• Rotate from XLU/XLRE into XLE or XLI: utilities and REITs are the cleanest rate-duration shorts if the term premium keeps rising; this is a 1-3 month trade, not a secular call.
• Prefer NVDA/AVGO over broad QQQ exposure: AI capex should keep semis funded even if multiples compress, but the bar is now monetization proof; use earnings/guidance as the catalyst and cut if AI order rates decelerate.
• Avoid or underweight JETS / airline exposures until crude stabilizes: fuel sensitivity and fare-pass-through limits make this a second-order loser from geopolitical escalation, with downside if Brent holds above the current range for multiple weeks.