RBC’s Lori Calvasina: ‘next big leg up in the market is for small caps’

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on Nov 23, 2021
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  • Lori Calvasina sees upside in the S&P 500 to 5,050 next year.
  • The RBC analyst expects small caps to outperform in H1 of 2022.
  • She's underweight on real estate and communication services.

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RBC Capital Market’s Lori Calvasina expects the benchmark S&P 500 index to hit 5,050 next year, representing another 10% gain from here. Interestingly, she says her outlook is on the “conservative” side as many economic indicators are vouching for north of 5,100 in 2022.

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Calvasina explains why she’s bullish on the SPX

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Her outlook implies she doesn’t expect concerns like inflation or the pandemic to break momentum anytime soon. On CNBC’s “Worldwide Exchange”, Calvasina said:

2022 is going to be a bit more challenging than what we’ve seen this year; we won’t necessarily go up in a straight line, we’ll be very balanced in terms of positioning trades. We do expect some zigs and zags, but overall, we think it’s going to be another good year for stocks.

According to the RBC analyst, nearly half of the companies listed on the S&P 500 currently have dividend yields that top 10-year treasury – a strong indicator that equities are likely to keep strong in the year ahead.

Calvasina expects small caps to outperform

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The Russell 2000 is on a four-day losing streak, but Calvasina is still bullish on small caps. She attributed the recent dip to the new wave of COVID in Europe but reminded that value stocks do better when inflation expectations are rising.

The next big leg up in the market is for small caps and value to outperform. We think the undervalued cyclicals will do well through the middle of next year, ahead of Fed rate hikes and ahead of markets starting to anticipate a slower economic recovery in 2023.

She is, however, underweight on two sectors; real estate and communication services. She sees both as “wildly overvalued” and picks small caps as a better means of playing the inflationary pressures.  

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