The market is pricing about three Federal Reserve hikes over the next twelve months, and Lori Calvasina's modeling says equities can absorb that.
What she is describing is a ceiling rather than a forecast. Move the assumptions to six hikes, inflation nearer 4% than 3% and a 5.5% 10-year yield, and the same model turns and does real damage.
"So I think we're at sort of a critical juncture right now."
Calvasina runs US equity strategy at RBC Capital Markets, which has just moved from a year-end price target to a rolling twelve-month one, and she publishes the modeling the rest of the desk trades against.
The full segment is covered here so you can skip it.
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👤 Guest: Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets
🎙️ Hosts: Tom Keene and Paul Sweeney, who anchor Bloomberg Surveillance on Bloomberg Radio
👥 Also on: Dan Ives of Yorkville & Ives, David Tinsley of Bank of America and Naomi Fink of Amova Asset Management, in separate segments of the same programme
📰 Published: 14 September 2026 on the Bloomberg Surveillance podcast feed
🟣 Apple Podcasts | 🔗 Episode page | ⏱️ length not available
Key Takeaways
Three hikes and a 10-year below 5% is what equities can survive; six hikes and 5.5% is where her model breaks
"But we are kind of pushing up against the ceiling of what they can handle."
RBC has doubled the haircut it takes off bottom-up consensus earnings, from 5% at the start of the summer to 10% now
The extra five points are there to price in AI froth before it shows up in reported numbers
Estimates for 2027 are behaving abnormally — they started coming down and then turned back up, defying the usual downward drift
Small caps, not the S&P 500, are where the hike fear is being expressed
Moving to a rolling twelve-month price target means she does not have to rewrite her view at year end
Her open question for next year is whether inflation in the middle quarters holds, because the consensus low-two forecast depends on gas prices normalizing
1. Three Hikes, Not Six
Tom Keene's opening question was which distinction stands out in what he called her really important, dense, statistical Excel spreadsheet research.
The line she drew is between where the 10-year sits now and what the market has priced. "So I would say in my work, Tom, there's a clear line between sort of where we are right now on the 10-year and what's being priced in in terms of hikes, which is about three hikes over the next 12 months."
The yield forecast is the thing equities are living off. "Our rates team is still forecasting 10-year yields are going to stay below 5% over the next 12 months. That seems to be like what equities can handle." She was careful that this does not mean pleasant, and did not rule out a short-term drawdown
The breaking point is a specific combination, not any one number. "But if we sort of take things up to, say, six hikes, if we take inflation closer to 4% than 3%, and if we kind of model in 5.5% on the 10-year yield, then we start to see some real damage done to equities on a year-over-year basis."
Her summary of where that leaves the market: "So I think we're at sort of a critical juncture right now."
Her own rates colleague is calling three adjustment hikes across the next three meetings, and she accepts that: "I think equities can handle that. But we are kind of pushing up against the ceiling of what they can handle."
2. A 10% Haircut on 2027
RBC had been taking 5% off bottom-up consensus earnings for next year at the start of the summer, to account for the non-AI part of the index facing pressure from the war and from inflation
In the last two updates that came up to 10%, and the reason is AI. The extra five points are there to reflect investor concern that the AI side of the market has become frothy, before any of it appears in reported numbers
The point of doing it is to test whether the index still works with every worry priced in. With rates, inflation, the Fed and now some AI froth all in the model, her answer is that it does: "We can still get you to eighty one fifty on a 12 month time frame right now." That is her rolling twelve-month target for the index
She dated the change in client mood precisely. "But admittedly, you know, those concerns about the AI side of things has started to creep in over the last, say, four to six weeks."
The market made her point for her mid-answer. Paul Sweeney read a headline off the terminal — "Nvidia. Palantir, Booz Allen, to limit Anthropic model use. That from The Information. And this moves the market. Nvidia breaking down to new intraday lows. Futures are negative 51 and negative 58. Futures now negative 61." He added that the VIX was out two big figures
3. Estimates Defy Gravity
Her first observation about earnings is a rule rather than a forecast. "Number one, normally estimates start out too high if you're looking at bottom-up consensus estimates and have to be ratcheted down."
Her two analogues are the years after a shock, not the shock years themselves. In 2019 and 2023 — the years following the first trade war and the start of the Russia-Ukraine war — the current-year numbers for 2018 and 2022 held up well and the following year's numbers were cut significantly
2027 is not following that pattern, which is what she flagged. The growth rates implied for next year initially came down, largely because 2026 kept surprising to the upside. Then: "But now we've started to see the growth rates implied in twenty seven move up again"
Her phrase for what is missing is the typical gravity that normally pulls estimates down — and its absence is what makes the haircut necessary
Sweeney's framing of the problem was the comparisons. Earnings have been so strong through the first half that the base effects alone make the coming year hard
4. Watch Small Caps Instead
Asked how the Federal Reserve meeting on Wednesday goes and what the market is discounting, Calvasina declined the forecast and offered an indicator instead.
She was happy not to have to call it. "So, you know, I love that I don't have to forecast the Fed." Her colleague has moved to three hikes across the next three meetings and expects a pause after that
The chart she watches maps hikes priced in against small-cap and large-cap performance. It has been holding steady in the three-hike area
The pain is not in the index everyone quotes. "And you've seen small caps suffer pretty significantly on a relative basis over the last few months."
So that is where she reads sentiment. "So I think that equities, you know, we can watch small caps for a signal to see how the market feels rather, I would say, than the S&P 500 itself." Small caps, in her description, are taking the brunt of the hike-fear trade on a relative basis
5. The Rolling 12-Month View
Keene asked what she will write on 30 September, describing the ritual as a big 32-page memo that is really an 85-page PowerPoint. Calvasina did not disagree: "Oh, yeah. I mean, it's nuts. End of year. Yeah, sure."
The process change is the answer to the question. "So I'll tell you, Tom, we moved from a December 31st price target, you know, which is what most strategists do to a rolling 12 month view." She said it has forced the desk to keep its eye on the long term
The consequence is less quarterly rewriting. "So I don't think we have to rewrite much." And: "I think that new process we've introduced allows us to adjust every single month to what we think the long term view is."
The question she says is genuinely open is not the Fed's stopping point. It is two things: whether 10-year yields stay contained around 5%, and what happens to inflation in the middle quarters of next year
The consensus on that inflation path rests on one assumption she is not sure of. "So you look at consensus numbers there in the low two." Then the reason: "As I've talked to my economist friends, I'm hearing that has to do a lot with normalizing gas prices. Well, the war kind of throws a monkey wrench into that."
Calvasina's bottom line is that the index can carry the hikes currently priced and cannot carry twice as many, and that the useful signal in the meantime is small caps rather than the S&P 500.
Bonus Insights
Keene introduced her segment by saying the desk needed a briefing, and framed her work as the statistical counterweight to a morning of AI narrative
She does not claim the AI froth is happening. Her language throughout was about investor concern and about wanting to reflect that concern in the numbers to calm nerves, rather than about a call she is making herself
Products, Companies & Tools Mentioned
RBC Capital Markets (Where she runs US equity strategy, and whose rates team supplies the sub-5% 10-year forecast her equity view depends on)
Nvidia, Palantir and Booz Allen Hamilton (Named in the headline that crossed mid-segment, on reported limits to their use of Anthropic models)
Anthropic (The subject of that headline, and the reason the index was making intraday lows as she spoke)
The Information (The outlet that broke the story Sweeney read on air)
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