Investment strategy through the ‘up crash’ and beyond
RBC’s Markets in Motion is the weekly podcast from Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, highlighting her latest views on the US equity market. This is a special edition of the podcast recorded live from the RBC Global Energy Power and Infrastructure Conference in New York on June 3rd, 2026. Lori teamed up with Callie Simpkins (Managing Director on RBCCM’s Cross Asset Hedge Fund sales team who moderated the discussion) and Amy Wu Silverman (Managing Director and Head of Derivatives Strategy) to discuss the outlook for the US equity market and other key macro issues including inflation.
Two big things you need to know:
- First, Lori and Amy review how the US equity market rally seems late innings in some respects, but is not making clear signs of a top and why there could still be room to run.
- Second, they emphasize inflation as a key risk factor, and how it factors into the equity market outlook and positioning.
Lori Calvasina
Welcome to RBC Markets in Motion podcast, recorded June 3, 2026. I'm Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers. Today we have a special edition of the podcast, which we're cross-promoting across a number of RBC's other podcasts, Strategic Alternatives and Macro Minutes. We're recording live from the RBC Global Energy, Power, and Infrastructure Conference in New York. I'm joined by Callie Simpkins, Managing Director on our Cross-Asset Hedge Fund Sales Team, who will moderate our discussion, and Amy Wu Silverman, Managing Director and Head of Derivative Strategy for RBC. Before we get into it, a quick reminder to my Markets in Motion listeners, that if you found our research and podcast helpful this year, we'd appreciate your vote in the 2026 Extell, formerly known as II, All America Research Survey. On the Excel voting portal, you'll find me under Macro, Portfolio Strategy, RBC, and then select Lori Calvasina. Five stars would be lovely. Now, back to the show, and I'll turn it over to you, Callie.
Callie Simpkins
Thanks, Lori. So, you and Amy have had great calls through this whole Iran conflict. Amy's talked a lot about the up crash that's priced into equity derivatives markets. You've had a 7900 price target on the S&P500 on a 12-month forward rolling basis. Help us figure out the market from here. So, if we think about four potential situations, let's say one, up crash, two, a garden variety pullback, call it five to 10% in the S&P, three, a bigger pullback, like a recession fear-type pull back. And four, by definition, we can't really explain what a black swan would be, but let's just say four is a black swan scenario. What gets us into each of those four paths from here? Amy, maybe we'll start with you on the up crash.
Amy Wu Silverman
Yeah, so the up crash has been interesting because, there's this nuance, a lot of people say it's a melt up, and I've been really keen to be like, ‘look, it hasn't really been a melt up, it's been an up crash.’ And why do I kind of fixate on this distinction? It's because we kind of took this study and we said let's just take all S&P500 stock returns since about March 30, which you could argue was kind of the low, and when you slice those into return buckets, so you say, ‘hey, here's my pool of stocks that are up more than 25%, up more than 50% versus my stocks that are down, say, 10% or 20%.’ When you look at these return buckets, and you just look at their realized volatility since that March 30 low, you have seen substantially more realized volatility on the upside than you have on the downside. So that's why I'm very clear that to some degree has been this up crash. We have experienced it, and we continue to go further. The other element I would say has been so crucial is usually in option markets, when the market goes up, volatility usually declines. It's because things are better, everyone's happy, right, and we haven't seen that at all. We've seen this dynamic, which is more spot up, vol up, but all that is to say is your volatility is rising as your market is rising, and so some of these metrics that we typically look at, so the VIX, for instance, we have to take it with a grain of salt, because if we are rallying and the chase to the upside volatility is what is causing that volatility metric to rise, then is really is that a fear gage? I don't know. So, when you think about this up crash, we're still kind of in this FOMO MOMO area. We haven't left it yet. There are many different ways we categorize that, but the bottom line is there's probably still more room to go, even though we are quite frothy.
Lori Calvasina
Yeah, I mean, just to jump in here. My team and I, we feel like this is getting frothy. We feel like we're going to get a pullback, and the risks are rising, but at the same time, when we look at our data, it feels more late innings than signs of a clear top. And so, I look at things like AAI net bulls, I mean, I think it was minus 6% last week, so about 6% in favor of the bears. That's not a top, you've got to get at least one standard deviation above the long-term average. So the fact that the market's going up, and everybody's kind of anxious about it, gives you room to climb that wall of worry a little bit longer. You know, I look at my valuation metrics, and especially the Russell 2000 because that one failed an important test earlier this year when the market topped. We’re seeing right now a PE on an FY two basis of about 17.6 times, think got up to like 18.4 this past time, and the previous high had been 18.2, so 17.6 is not 18.4, but it's getting pretty darn close. You got a little bit more room on the S&P, right? Where you're trading around 21 and a half times. The most recent couple of tops have been around 26. I get a little bit more nervous when I look at the top 10 market cap names in the market, because those are trading around 31 times, and 32, 33 has been the top recently, but while that could be portending a potential top, it could also be telling you you need a catch-up trade in the rest of the market. And we are starting to see earnings revision trends finally broaden out, you know, to kind of the non-top 10 market cap type names. So I would say for now, it feels like we've still got a bit more room to go, we're not as nervous as we are starting to get, we are just not seeing signs that now is the time to just pull out. I would say the other thing, Callie, you know, on the 7900 target, we set that once a month, and we typically do the median of our five different models. I didn't do that this time around, and we can talk about that more later, kind of like what we were baking in, but the 7900 came from our earnings and valuation model. If I had just taken the pure median, we'd be sitting at 8100 with that forecast. And we wrote all this, and said, at the time, it does feel like there's some upside risk to our numbers, and even some of our more aggressive models were getting up to 83-8400 so we can sit there and take certain models and see also how this has some more room to go.
Callie Simpkins
So, if we have more room to run, based on what you're seeing, Lori, from the fundamentals. If we are in late innings but not quite yet the top of the market from what you're seeing. Amy, in the equity derivatives market, can you talk to us a little bit more about the MOMO FOMO part of this next leg of the trade, and how can we take advantage of that as investors?
Amy Wu Silverman
Yeah, the good news is there's a lot of interesting things to do right now. I'd say one is, again, this spot up vol up dynamic, essentially what it has created is an incredibly expensive call wing. The upside trade is a lot more pricey than the downside trade. So something we've been talking to clients about is a really simple structure, which is called a caller. So very basic, you are selling upside, that, as we mentioned, is very pricey, and you use it to fund buying downside. So, what happens is you're getting downside protection at very, very low cost, and in some instances, because of this call exuberance, you're actually getting a net collection of premiums, so meaning you're actually getting money in for putting on protection. And look, if you're someone who has actually been in the right trade, if you're someone who's got winners on your book, and you're looking, you're saying ‘even if this does have some room to run, we acknowledge that we're in the later innings. I'm willing to give up maybe slightly a little bit of upside, and in exchange, if something does occur, the fact that I can get my downside protection essentially for free is very compelling.’ So those trade structures that we recommend folks look at now basically take advantage of that fact that that call wing is completely out of whack, completely driven by FOMO and MOMO, which look, we know momentum does tend to beget momentum, but we also know at some point that momentum does stop.
Callie Simpkins
I think that's a great segue into the next part of these four paths forward. So, these are ways that you can take advantage of the current market structure to put on downside protection if you're worried about a pullback. So, what is on your radar? What keeps you up at night that could get us into that pullback? So, let's think about a garden variety pullback, and let's think about, like, recession fear, greater pullback, those two things. What do you think?
Lori Calvasina
So, look, I would say, if we go to kind of like that tier one garden variety pullback, five to 10% There are a few different things that we've outlined. I would say one of those is just midterm elections are coming up, right, and we do tend to see volatility around those events. And it's something very much on investors' minds, right. I've had even U.S. investors, not just international investors, want to talk about that recently as a risk factor. The rise in interest rates that we saw recently, while it feels like that heat has come off now in terms of that fear. We went back and, you know, sort of looked at some of our work, and if you look since 2022 and I would say start post-2022 because 21-22 was more of a regime change, we had an increase in 10 year yields of more than 300 basis points, they've been much shallower recently. And so what we've seen since then, right, is if you have like this 168.90 basis point increase in 10 year yields, and you stay contained under 5%, those pullbacks have been limited to the five to 10% range. So we've said, if we break out of that range, if we go well above 5% you might be looking at something more significant in terms of a market drawdown. But if we just sort of have, you know, a move up that is something that could contribute also. Another thing we've talked about quite a bit is delayed impacts from the situation in the Middle East, and I took a look back at 2018 and 2019 bottom-up consensus forecast, and I did the same thing for 2022, 2023, so tariffs, one, and Russia-Ukraine war. And the really interesting thing is that the market, if you looked at the consensus earnings numbers, there was barely a blip in terms of the 2022 shift and the 2018 shift. Those numbers came out fine and more or less where they had been expected to be. If you looked at 2023, and you looked at 2019, the out year, the after year, those numbers were steadily coming down from the summer of 2018 and the summer of 2022. And as we kind of look through company transcripts, they're talking a lot about buffers, inventories, hedges. My favorite one is a chemical company that has a year of helium sitting in a cavern in Texas that they put in five years ago. I think companies are doing a beautiful job of managing through, and they've really honed their crisis management skills, and they're talking a lot about that. Those buffers and inventories don't last forever, and at some point, if this goes on long enough, and we haven't, seen things settle down, the market is going to have to digest that. Companies are going to have to come and talk to investors about what next year looks like. And the market, may need to adjust some numbers. So, those are kind of three, basic things that we're thinking about a bit. Obviously, war setbacks are another, and semi-profit taking - we don't have to go too deep into that, but that's another one, sort of, that's been on our radar for a tier one kind of draw down.
Callie Simpkins
Great. But what about a black swan event? I think it's hard to talk about a black swan event without talking about Iran and the conflict and energy. So, I'll put that to you. Is there anything else that's on your radar?
Lori Calvasina
When we look at our four tiers of fear, I always joke in meetings we don't talk about tier four, right? We all know what those were. But if you go back, you know, to sort of the GFC, I remember I had become a Small Cap Strategist in 2007, and so very interesting time to be launching as a senior analyst on any kind of macro product. And I remember at the beginning of 2009, making a call that small caps would have an okay year, right? I was more constructive than most folks, and we sort of looked at the GDP backdrop, and just, I remember this idea that it would be the final down GDP year. And so if it was that, and that's what our economists were saying, then it would be the time to start to look for markets to price in better times ahead. That's something we saw in one of those tier ones. If you look at the other tier four, which was, in my lifetime at least, which was the tech bubble, you know, I just don't sort of see the same ingredients for that today. I get asked all the time, is AI in a bubble, and I really just don't agree with that. I think the market is concentrated, the earnings are concentrated. I do think there was some overhype initially, but I do think we're actually starting to turn the corner in terms of seeing real impact. So, I kind of push back against that AI bubble thesis a bit.
Callie Simpkins
So, to piggyback off of that, when you talk about tech, the last time that we were together talking about potential fears or issues that could crack the market, software was a big theme, right? And particularly for the credit markets, there had been a lot of lending in the software space over the past five years, and with the introduction of AI, those fears really started to culminate at the beginning of this year on how AI could disintermediate software, particularly as it pertained to the credit markets. IGV now is up 30% since April 10th lows. Amy, can you tell us about what you're seeing, what you're hearing? Are there fears culminating again in software. What do people think?
Amy Wu Silverman
Yeah, so I want to take this question in a slightly different way, but bear with me, because I'm coming back to answer it. So, what has been interesting, and we've talked about this on the podcast before, as that the market has been this paddling duck. When you look at average single stock implied volatility relative to index, the spread could not be wider. It's just historically at wides. Essentially, this duck is really calm on the surface, index vol is really calm, but underneath those, again, those duck feet paddling furiously. Why, why do I bring this back to software? Because some of the zigging and the zagging that has happened has been trades like semis versus software, right? So one's been zigging, the other has been zagging. Again, you go back to that index level volatility, that's why we're getting these sub-20s fixes. However, because we're seeing signs of life in IGV, the other thing this implies is things are kind of going a little bit in the same direction, right? And I just want to address one point, which is one thing that could take this market down, it doesn't have to be some finite event, it doesn't have to be geopolitical, it could simply be the reflation of correlation. So correlation again has been massively low. It's helped these dispersion trades, which has to some degree made the market structure of those trades very crowded. However, we saw an instance of this earlier in the year where that correlation started to rip up, and that can just make funds have to go to the exit quickly, so it can just be a liquidity event. The second thing I would say about that, specific to software, is you are starting to see intra-sector dispersion within it. So, essentially, when we look at the vols, there are vol winners and there are vol losers, where the skew is showing bearish sentiment on some but bullish sentiment on others. And what I think is fascinating about that is, we had done a different study, but trying to map it to software, and to say, simple question: during the rise of the internet, there was obviously a lot of displacement. How did the market start to think in price options volatility when there was that terminal value risk? And the answer was not ‘everything got disrupted immediately.’ Actually, there are some winners, and then there were losers, but even those losers, a lot of them became M&A takeouts. So, two points here, the first is when that zigging and the zagging just starts to become zagging, that has implications to correlation, which has implications to index volatility, but also has major implications to people who are crowded in this trade that has always been betting that that duck keeps paddling, and the second aspect of that is it not entirely clear as the market starts to differentiate winners and losers that we will not continue to see signs of life in something like software.
Callie Simpkins
So helpful. I think we've given investors a lot to think about, and you all have been extremely helpful in navigating these crazy times. Last thing, Amy, you recently were at a lunch with Mark Carney. Maybe we end on just some high-level takeaways from that lunch. What, what did you take from that?
Amy Wu Silverman
What Prime Minister Carney said that I thought was so interesting, is he was asked by the moderator, ‘like, look, given everything that's going on with essentially middle powers having to invest more in their own defense,’ which is kind of an echo to what he said in Davos, ‘what do you think that means for inflation,’ and he was very clear, just one line, he says, 'Look, I think inflation is going higher. I think ultimately when you look at the tectonic shifts, when you look at de-globalization, and you look at the fact that defense is something that each country needs to be x percent of GDP for itself, that just means there's going to be more inflation. And I'll just harken back to another lunch that Lori and I attended with General Petraeus, where he made very similar comments, more from the perspective of warfare, and about how just, you think about modern warfare changing because of AI and drones, and how that in some way could put all countries on a slightly more equal playing field, which to some degree is quite dangerous.
Lori Calvasina
And I'll just jump in here. You know, this point about inflation, I think, is very important. And in my year ahead outlooks, the last few years, one of the things we've been talking a lot about is how does this post-COVID era of investing that we're in differ from the post-GFC world, from the 2000s which is when I grew up in the business, and say, even the 70s or 80s. And the reality is that we have thought all along that we are in for a higher inflationary environment, right? And so, one of the reasons we stuck with this one model in our 7900 target in this latest update was because it really allowed us to fine tune our earnings and inflation assumptions. So, we went ahead and we put in 3.3% inflation for one Q2 seven, that's in line with a stress test that our economists had done on $100 oil for an extended period of time. We took all the Fed moves out, we left the Fed flat, and we went ahead and put in four and a half 10-year yields. It seemed like a very onerous forecast at the time. Now the markets caught to that a bit. But we married that up with just kind of a slight adjustment to consensus earnings, lopping 5% off the top side to just reflect this idea, AI is in the fast lane, everything else is in the slow lane, keep those AI numbers strong, weaken everything else a little bit. These all seem like very reasonable assumptions to me, I can get you to 7929 on that math. If I take my inflation assumption up to three eight, add in a couple of hikes, and take 10 year yields up to 5%, that number on the same earnings goes down to about 7400, 7500. Flattish market from where we set the target. And if I take it up even worse, right, I go to 4.2 on inflation, I got four hikes in, and I go to five and a half percent on 10 year yields. That's when I get you a down market on our modeling. So, I think kind of marrying up these qualitative, you know, things that we're hearing from these lunches and these global leaders, and then kind of putting it into the valuation model, that is what we're very focused on right now. And I would say at the end of the day we are seeing PE compression from higher rates, higher inflation, but that is a very stiff headwind. We are going up against an even stronger tailwind from earnings and AI. And by the way, the non-AI stuff has all been acting pretty resilient, and the companies are telling us they're doing a good job managing it. It's a complicated market right now, but that's how we see it all settling out.
Lori Calvasina
Thanks for moderating.
Callie Simpkins
Yeah, it was great.
Amy Wu Silverman
Thank you.
[DISCLAIMER]
This content is based on information available at the time it was recorded, and is for informational purposes only. It is not an offer to buy or sell or a solicitation, and no recommendations are implied. It is outside the scope of this communication to consider whether it is suitable for you and your financial objectives.