Lori Calvasina

Welcome to RBC’s Markets in Motion podcast. 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're excited to bring you a special edition of the podcast, a recording of a panel I did on March 10, 2026, at the RBC Financials Conference in New York City. I was with Helima Croft, RBC’s Head of Global Commodity and Middle East Research, and Francis Donald, RBC’s Chief Economist. We discussed recent events in the Middle East and the implications for the U.S. economy and stock market. Brian Sullivan of CNBC moderated the discussion.

We hope you enjoy it.

Brian Sullivan

Helima, where do you stand on this Iran issue right now? Energy? What do you think is going on? Where do we where we go?

Helima Croft

So, I think that the question is like, how does the administration define success? And I think the administration, because they have laid out so many criteria for declaring it done, that they can pick one, and it can be potentially over from their standpoint. But the Iranians clearly have a voice, and they basically can continue through asymmetric means, drone capabilities, through small boats laden with explosives and mines. They have proxies that can still enter the conflict so they can extend this beyond Washington's desire to off ramp it. But when I talk to people I know in Washington, they say the formal initial military objectives, which were centered around the missiles, the launchers, the naval assets, the formal naval assets – that can be achieved now in about two to two and a half weeks. But as you know, Brian, the losses in terms of oil production are just mounting. We now have 6.7 million barrels a day across the Middle East that is now just shut in, because if you can't move it through the straits, and we can talk about like, what's it going to take to be able to move ships through the Strait, but if you cannot effectively move it through the Strait, countries have to shut in, and the timeline for restarting will vary depending on infrastructure.

Brian Sullivan

How do we count barrels right now? I have no idea where we actually stand. The Saudis got the pipeline. They're increasing it. UAE’s got their pipeline over here. They're increasing it. Some ships are going through the straight with the lights off.

Helima Croft

So if we think about it, like on any given day, usually, like 70 to 80 ships go through the Strait, and then we'll get one or two going through now, on a good day maybe three. So I think it's very important to think about order and magnitude. So when we talk to people in the region, they will say, insurance is just one part of the equation. We just don't want our ships attacked by drones. And you know one NOC CEO, Sheik Nawaz, you can actually read his interview with Princeton alumni weekly. He was like, Look, I am not deploying my strategic fleet in the Gulf without a U.S. naval escort. So hence, when you hear Secretary Wright's comments today, the tweet and delete about a U.S. naval escort, I mean that I think does kind of convince people, oh, we have a plan. Because certainly that is what has been described as necessary to convince people to move ships through.

Frances Donald

I mean, Brian, just go back to, we covered this together in 2019, we imposed maximum pressure, sanctions on Iran. I had actually been in an event uptown at the Council on Foreign Relations, and the Iranian foreign minister, who we thought was a reformer at the time, was like, if we can't sell our oil, no one can. And they started putting ships, mines on ships off of Fujairah, their allies, the Houthis attack the East West pipeline, which is really important, because everyone talks about diversionary infrastructure away from the Strait of Hormuz, principally the East-West pipeline, which Saudi can use for 7 million of crude and products to Yanbu on the port of the Red Sea. The Houthis already attacked that pipeline in 2019 – if the Houthis enter the chat of this conflict, that port of the Red Sea is at risk, that pipeline is at risk. But then, as you remember Brian in September, September 14, 2019, the Iranians and the Houthis and their Iraqi militias did an attack involving drones and missiles and knocked off half of Saudi’s production at their major oral processing facility at Abqaiq. So, the Iranians have a lot of capabilities when it comes to asymmetric means, again, it's the missiles, it's the proxies, we focus so much on formal apparatus of warfare, but they can keep this fight going. And just the question is like, also, when did they say enough.

Brian Sullivan

If I sat tonight and said to you guys, guess what, we're going to be at war with Iran, oil prices are the biggest spike and then drop in American global history. Oh, we’ve got private credit cracks. By the way. It's not just energy. We’ve got all these things, private credit issues, some of the biggest firms on Wall Street, lot of fears, and the stock market is 3% from an all-time high. You'd say, I'll have what he's had, right? But that's where we are. Makes it make sense.

Lori Calvasina

So I'll give you sort of two looks at this, maybe three, actually. So number one, you know, we've had this fierce rotation out of the U.S. so far this year, prior to all of this, in part because of the AI jitters, because of the private credit fears. What we were really surprised to see was that as of last Tuesday, which was not the year-to-date low, but at the time, you know it was, it was pretty close to where we were Friday, We had seen the U.S., non-U.S. valuation ratio moved down well below the post-covid average, and we, in fact, were almost back to the 20 year average. So we basically had a valuation opportunity open up in the U.S. at the exact time that this crisis occurred, and we saw the U.S. getting treated, the private credit stuff got sent to the back burner, the AI stuff got sent to the back burner, and all of a sudden we're the safe haven again. So you see the dollar rally, you see money coming back into the U.S. equity market. I think the other thing, frankly, is, I did a survey of our analysts last week, and I just said, I sort of took the $100 for longer oil price scenario. And I said, assume this conflict goes on more than four weeks. What does that do to earnings? How does that impact your industry in terms of revenues from the Middle East, and what about knock on effects? And it was really interesting, because outside of the energy complex, we found that most analysts were in the sort of, this doesn't matter. They picked none in terms of impact, they said only a little, or they said mixed or not relevant. And so that idea that there is some insulation in the U.S., it may end up not being true, but for now, I think that's where a lot of the bottom up stock picking community is. So, I think we're benefiting as a defensive trade right now.

Brian Sullivan

Frances, have you and your team adjusted any of your U.S. or Canadian or global growth interest rates or inflation estimates?

Frances Donald

Well, funny you should ask that question, tomorrow, we release our monthly forecast. We do this every month. We go through recycle those forecasts you work for a bank all the way up the chain to the CRO, the CFO. They're used in determining all sorts of things for our actual business. And yesterday was the day where we had to fix an oil price. If you were looking at the market yesterday, we had to swap that out six or seven times. So what we ended up doing was just creating a range of scenarios. But effectively, if you are any type of economist right now, they'll all effectively tell you the same thing, because we've been through this before, and there's a few stylized facts we know about oil price shocks in the U.S. The first one is, on balance, virtually no one is going to make changes to their GDP forecasts on aggregate, and that's because in the United States right now, we're going to see a drop in consumption that's going to be largely offset by an increase in investment. It doesn't happen all at once. The consumption profile gets drawn down first, then the investment profile starts to rise. But on balance, the rule of thumb is the net impact is zero. But that hides huge disruption under the surface. One of the big challenges that we would potentially have to look at more if oil prices rose, of course, is inflation profile. So, we have been in the camp that we're gonna see three-ish inflation this year, nothing that is explosive or massively problematic. But we have just celebrated the five year anniversary of inflation above 2% in the United States, and we'll probably, if we're back next year, Brian, hope you join us, celebrate the six year anniversary next year of inflation.

Brian Sullivan

Are you going to give us a rate cut for the anniversary? What’s the gift?

Frances Donald

Well, I don't know how the Fed is cutting when inflation is running around 3%

Brian Sullivan

That’s the consensus – rate cuts, in inflationary environment.

Frances Donald

Well, okay, so that's how you make money, Brian, we have a view that's different from consensus. So, when you have $100 oil, that brings you to more like three and a half percent CPI. So that becomes more problematic, but the big thing we need to be paying attention to is, how does this impact the consumer? The consumer is not like it was with Russia, Ukraine. The savings rate is very depleted. Job growth is about zero. And there's only one area where the U.S. consumer has been getting any reprieve on prices, and that's been gasoline. They've seen food prices up, electricity, childcare, beef, coffee, all the day-to-day necessities for Americans have been steadily climbing over up 30% in the past five years. The one area where they have not seen that is gasoline, and the number one indicator that will tell you about consumer perceptions of inflation in the United States is gasoline prices. So what I'm watching in the next few weeks, is not that my GDP forecast is going to change, or even that my inflation forecast will change, because we're going to have to see how things settle. It's how does the consumer behave and react from the one thing that was keeping affordability relatively in check? How does that get impacted?

Brian Sullivan

Well, Helima, I'm not going tell you this, but the audience, you guys probably know, but if you don't, when Russia invaded Ukraine, and I know this where you’re going to say [inaudible] I get it. When Russia invaded Ukraine, price of oil went to 120 but then, that was on February 22, 2022, then it fell in May to low 90s. June 6, it was back at 120. We thought it was fixed, and then we saw this. I don’t know. I have no idea where oil prices…

Helima Croft

I think what's important is that with Russia, Ukraine, we ran up that, like, one – I think it was 127 at one point, we ran up on that based on a fear factor that head of the International Energy Agency came out and was saying, like, we could have a 3 million barrel day disruption. We now have a physical disruption, more than double the fear disruption that we saw with Russia, Ukraine. And so, the question is, for the administration, they have every incentive now, because of retail gasoline prices, the midterms, to try to bring this war to an end, and just conversations we're having, the people were saying, like, our optimistic expectations is, like, we can bring this thing to an end in two weeks. Like, that's still going to be time to get flows going back. Think about Europe with liquid faction, Qatari LNG, but that is a timeline the administration may be able to work with, but God forbid this goes beyond two weeks.

Brian Sullivan

Well, and if the supply shock goes on, again, Frances, just to go to your modeling. I remember when the tariff announcement hit, it was stronger than expected and the market fell 20% in like, three weeks, and you guys sleep for a month because everyone was trying to remodel all their economic expectations, and just trying to, by the way, understand what the tariffs were on everything was probably impossible. Energy might be a little bit easier to model, if you had any idea in a month whether oil’s going to be at 65, 75, 105, 145, how are you – you said just now – you threw in a range. But is that like what we're going to have to do for the next few months?

Frances Donald

The profession as a whole is using scenarios for just about everything right now for a range of reasons. First is we just have so many new shocks that we have no experience with, that it feels more prudent to say here's the range of expectations. And one of the most interesting things about scenario work is sometimes you can run a really big scenario and find out that the dispersion of outcomes is actually more narrow than you might think. But the second thing you can do is focus on what you know to be true no matter what. So we have tariffs, the rates of which are changing all the time. We have oil shocks that are coming through, but there are some things we know will continue to be true no matter what. And one of the big ones is that this is a population that is aging. They're retiring in droves. The labor force is shrinking in the United States, and as a result, there is missing workers in the U.S. economy, which is how we're leaning towards jobless growth, jobless growth, or I like to better say, productivity-led growth, is now the determining element of the U.S. economy, and these additional shocks on top of it, well, they may move the dial a little bit, but they're not changing the entire direction, the entire narrative that guides so many of our clients’ thinking. So even though there's a huge, long list of things we don't know. There's so long list of things that we do, that we can model with high confidence, and you have to lean on those.

Brian Sullivan

Well, energy's been leading the market. We'll see where it goes from here. How much does energy at all, and it's not a lot, factor into your and your team's modeling of multiples and valuations?

Lori Calvasina

So it's interesting. When Frances, their team, put out some stress tests last week, I think it was on, if we have $100 oil, what's that going to do in the inflation rate? And so, we took their number actually, and put it into one of our models. And I'll just back up and say, This is not the only model we use in our process, but it has been the most bullish one, and it had been pointing to with previous assumptions about 8000 on the S&P at the end of the year. And so we went in and we added in your new inflation view, I added, I took 10 year yields up to four and a half percent, just because I wanted to add some stress. I left the Fed alone. I think there's a debate there, but I didn't feel comfortable just jacking those numbers up. It reduced the PE significantly, and took that projected forecast down from, say, 6600 to 6900 on the S&P. Now I use two different flavors of earnings, and I tried to worst case scenario it without putting a recession in. So one thing I did was I went back to 2015, 2016 when we had an industrial recession. We had problems in the energy complex, and we had flat earnings for three years in a row. So I made earnings flat with last year. That got me to 6600, and then I took 5% earnings growth number, which is what we got in 2022, so I know it's not exactly the right analogy, but it seemed like maybe sort of a decent ballpark, and that's the range we've been stuck in recently, right? And I think we are going to be stuck doing those scenarios for quite some time. We did look at energy and oil prices and the impact of earnings revisions by sector. None of them, it doesn't produce negative earnings revisions in any sector. So that was a comforting thought. It does depress the revisions, but doesn't necessarily flip the negative. And I think, the other thing we've talked about quite a bit is the impact is really on the PE multiple, at the end of the day, if you think about geopolitical risk, when it spikes, we tend to see median PEs come down. And so, we've not been looking for any multiple expansion this year. But I would say one thought in the back of our head is this idea that multiples, that is, it may not be felt through the earnings channel, but it may be felt through the multiple channel.

Brian Sullivan

Does the G7, your IEA, Helima, make a difference when it comes to oil, there's talk about this 2-300 million barrel, 400 million barrel global SPR release?

Helima Croft

Hasn't happened yet. I mean, I think part of the reason why we saw downward pressure on prices yesterday was the presumption that we would have some announcement, that there'd be a coordinated Stock Car release, three to 400 million barrels, and then you have President Trump, right before the closing bell, saying this is ending soon. The challenge is, is that it's a short-term bullet. And remember, Amos Hochstein, we've had him on stage here multiple times, he used it during the Russia, Ukraine war – the early days, 180 million out of the SPR, but there was no supply disruption. Now we have a physical supply disruption. And if we use that bullet, it only can last you so long. You know what country, though, is actually, I think, better prepared than people realize, to deal with this short term, if it's short term, disruption is China. As you know, China has been aggressively buying for its SPR, they've been building out their strategic reserve capacity. They've been buying all commodities, oil in particular. So I think they engaged in some very timely risk management when it comes to building buffers. United States has not replenished the SPR, I think that is something that we will look back on. We've done it like small, small purchases. But the fact is, is that multiple administrations, when oil prices were low, did not take the opportunity to replenish the SPR, and I think was because they've all been singularly focused on low oil prices and the consumer and didn't want to do anything that potentially gave any lift to oil prices. And we're sitting here now with a situation where the straits are effectively shut, again, a few loads of transmissions off, trans dollars off, go through, but like, let's look. You know what, the best we can talk about is Saudi sending barrels to the Red Sea, and that route’s unsafe. If we don't have this war wind down in two weeks, we are already looking at the biggest energy shock since the 1970s – this will vastly exceed that if this thing is not over soon – vastly exceed it [Brian] – yes, if we cannot move and again, we talk about just oil, fertilizer. I mean, there is an impending food crisis. We just focus on oil. But there's the issue on natural gas not moving from Qatar, fertilizer – you have to think about everything that goes through the straits. And let's say we continue to have problems with the airports in the region. I mean, Dubai Airport is one of the busiest airports in the world. If we cannot get the Middle East logistics back up and running, it's going to have bigger problems…

Brian Sullivan

So Frances, no pressure. You're going to have to start making multiple models based on how long this goes. Let's say oil goes back to 120 and sits there for three months. And I hope it doesn't, because that's a lot. But what if it does?

Frances Donald

Okay. So can I, like, add a dose of sunshine to this maybe? Let's just add all of this in the context. Because, before last week, we still had an economy. And while we're layering a shock on top of it, there is still an economy that is operating on a variety of themes underneath. So, I will acknowledge, an oil price shock is bad, it is effectively stagflationary for consumers. It is particularly problematic for low and middle income consumers. It will deplete savings rates. It will use up more credit. We're probably going to even see more buy now, pay later systems going through, not good. On top of that, we also have a once in 100 year tariff shock that is coming through. All of these are consistent with higher inflation than we're all comfortable with. But behind that, there are also these other themes. It's really, really mathematically hard to generate a U.S. recession right now, when the government deficit is 6 to 7% of GDP. There is a huge backstop. You can have opinions about whether it should be or shouldn't, but it's really hard to get a huge growth downturn when you have that much government spending in play. We got 20% of incomes in the United States that are coming from Washington. 20% of incomes are just Social Security transfers right now. Guess what? They're indexed to inflation. That's the most ever. We've never had that portion of incomes coming through. And then we have significant AI investment. It is concrete and steel that is being built. We don't yet have AI adoption that is super broad, but we have actual investment coming through, and productivity numbers are starting to come up as well. The unemployment rate is extremely light, 4.4%, one of our lowest in this economy’s overall history. So, we can't just think about the shock in a vacuum. We have to think of it as a layer on, not just one thing that's happening to the side. So would we have forecast adjustments if we were at 120 for several months? Probably. Would it disturb my five year plan? Probably not. Would it change how a lot of our clients are making business decisions over the five year horizon? Probably less than it seems, relative to what's happening in day-to-day markets related to oil. There is a post-Trump period. There is a period where oil prices settle at a different level. There is a period where AI adoption takes hold. And so while we're thinking about the news of the day, we have to stay grounded in some of those long term themes, or else we’re going to get carried away with the people one-sided exist.

Brian Sullivan

I’ll have what you’re having. I love that view. And long term, Lori, I don't know a lot, but I know this – in five years, 10 years, the S&P 500 will be a lot higher than it is now.

Lori Calvasina

And I'll give you an example. A few weeks ago, maybe I don't know, I'm losing track of time, but someone sent me the article about, from the tech guy who said, AI is coming for your jobs, I know, because it came for mine. And I read, the second paragraph was like, you know, and this is going to be worse than covid. And, I just wrote back a snappy wrote this, my husband has sent this to me, so I can be a little bit mean. And I just said, covid was a buying opportunity. And I know I sounded really callous in that moment, but the reality is, these are all buying opportunities, right? And so, I said on TV last week, I said, everybody, take a deep breath. What I'm worried about right now is not my 12 month S&P 500 forecast. It's looking at the signals that have helped us identify bottoms in the past. And I'm going to miss it, just like everybody else, everybody misses these bottoms if we do get a downdraft, but we have to stay focused on that data when it tells us we feel so bad, it's time to start getting past this, and that's really what our job is right now.

Frances Donald

Time horizons matter. Matters. Scenarios matter. What happens under the surface matters. We know low income folks are more impacted. We know certain sectors are more impacted. Those are the stories that need to be the broad takeaways while we're watching the day-to-day news flow.

Brian Sullivan

So hopefully the world will be very Frances Donald- like soon, where the sunshine will shine in – this will end in two weeks. Let’s hope. Not saying it will. I hope.

Frances Donald

Hope is not a strategy. And I would say that after the ‘73 oil shock, it did change a lot of how institutions thought. I mean, the IEA created after that. It did really change a lot when it comes to energy policy. So I would just say that if this is a medium term supply shock, I will be looking to see what it changes when it comes to government policy and what the lasting legacy will be.