FidelityConnects: Denise Chisholm: Sector watch – March 5, 2026

Denise Chisholm, Director of Quantitative Market Strategy, brings her unique insights and perspectives on the sectors to watch in global markets.

Transcript

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Hello, and welcome to Fidelity Connects.

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I'm Pamela Ritchie. Oil prices rallied as tensions rise

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in the Middle East. We're seeing new concerns about

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potential disruption across the global energy

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markets. Brent Crude we've seen has been jumping

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throughout the week underscoring the sensitivity of

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energy markets to geopolitical uncertainty.

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Now, as market participants watch closely to see how

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equity markets are reacting, kind of in both directions

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depending on the day, our next guest says that history

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shows geopolitical shocks rarely derail

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long term equity returns.

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Does this time look different?

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Joining us here today for historical data-driven

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looks at energy and geopolitical uncertainty is

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Fidelity Director of Quantitative Market Strategy, Denise

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Chisholm. A warm welcome to you, Denise.

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How are you today?

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I'm well, how are you, Pamela?

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Very well, thank you.

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We are watching very closely all kinds of things

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swirl in the world markets right now.

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I wonder if we begin just with, you'll

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take us through the history of shocks, the history of shock

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goes to talking about the question of inflation usually.

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I guess the concern is where does inflation go from

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here? You've told us it's been disinflationary for lots of

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good reasons for a while, has everything changed?

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No. We'll see in terms of the duration of oil prices

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but I think that at the heart of it is geopolitical crises

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aren't always involving oil.

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When you think about geopolitical events or crises or wars

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that doesn't always lead to a sustainable increase in

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the price of oil or a sustainable increase

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in overall inflation.

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I do think when you look historically, interestingly

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enough, if you look at all these geopolitical risks, even

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when they come through oil, it doesn't always

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lead to a more restrictive Fed or an overall

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increase in inflation.

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Part of that is because it doesn't always seep through to

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the core CPI, or PCE deflator the

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Federal Reserve watches, if it is not durable

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and sustainable.

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What we learned even when Russia invaded Ukraine and

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certainly in the Gulf War is that spikes happen

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on the upside and they also happen very quickly

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on the downside.

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A lot of what we've seen in history is not durable and

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sustainable and if it is not it doesn't have an impact

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on inflation and doesn't have a long term impact on the

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Fed.

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On the Fed. Maybe we just clarify, everyone knows

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that generally you're looking and have a more bullish

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perspective on the US equity story,

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it is quite a gap between what the oil price inflation

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question might be for Europe, for instance, and for other

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international markets versus the US.

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I wonder if you can just point to has it always been this

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way, how different it is right now?

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It hasn't always been this way. I mean, the interesting

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thing is the bull case on international, in so far as I

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understand it because I'm not a bull on international, the

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stocks are cheap and it looks to be they're fundamentally

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changing in terms of better GDP growth ahead

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because they're investing more in their defence

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infrastructure and investing overall.

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The problem I have with the argument, when you look at the

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data you haven't wanted to own international stocks

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when they're cheap because they sustainably have been

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a value trap, meaning that they go on

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to underearn their US peers even if you

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think it's going to be different this time.

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Maybe it will be different this time but we're not seeing

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it sustainably in the earnings growth.

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You're seeing a pickup in earnings growth in the US and

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you're seeing the flatlining in earnings, growth in

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certainly EAFE, certainly Europe, and

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to a less extent Japan.

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You're already starting to see that that pickup or

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that gap closure isn't happening, which

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again, from a statistical perspective leads you to believe,

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well, we are still in the throes of a risk

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of Europe or international stocks being a value trap.

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Now add in energy exposure.

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What's different this time versus the '70s and '80s,

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what I think a lot of people go back to with the oil

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embargo, could it end up like the '70's and '80's, it's

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structurally different from a production perspective this

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time, especially in the US.

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So during the '70s and '80s during the oil embargo period

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OPEC was producing twice as much as the OECD

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or their counterparts outside the Middle East were

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producing. Now they're actually on par.

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The OECD production is about in line

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with OPEC, which is fairly rare historically, and

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it's all based on US shales.

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For the first time in the data that I have going back to

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the '70s the US is actually a net exporter of energy

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which is massively different than anything that we saw in

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the '70's and '80's.

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Consumption, so energy, goods

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and services, the percentage of income, the US consumer was

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spending 7 to 8% of their income on energy,

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goods and services. Now it's 3.

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We're net exporters which creates a completely

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different framework for where we stand during an

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energy crisis in terms of defence or offence.

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So yes, it is yet another headwind, I would

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say, for Europe stocks specifically and for international

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stocks to increase the odds that what we're

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seeing is them still being a value trap because

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the sustainable growth that you're expecting doesn't look

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to be on the horizon.

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That is fascinating, especially if you take energy away

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or rattle its energy foundation.

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Any economy working through needing an energy foundation to

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be stable is going to be hit by this except

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for, as you say, some very key producing

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countries like the United States.

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Does it rattle the international versus ...

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does it take you back to buy America?

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Yes, my base case is yes.

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I think that it's increasing the odds that what you

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have seen outside the US is actually

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a value trap, meaning it's going to weigh on earnings

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growth which means that valuation isn't going to be

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statistically supportive because it hasn't been in the past

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because the market understands that over the long term

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Europe, Japan, EAFE broadly, underearns

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their US peers by about 3.5%.

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That's median to median, forget technology for a second,

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the median industrial company in Europe underearns their

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industrial US peers by about 350 basis

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points and it's more every cycle.

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To the extent that there is a problem in the energy

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markets and it's more durable this time, that is going

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to weigh on Europe much more than it's going to weigh on

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America.

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Valuation, statistically speaking historically, doesn't

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help you.

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It doesn't help you, statistically speaking.

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It doesn't matter how cheap it is because it's cheap

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for a reason.

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It could always be different. I mean, 10% odds aren't 0%

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odds.

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In some ways you all ask me to provide the data and the

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data makes me wonder and worry

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whether yet again you are seeing the same

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thing where we see an international stock rally and at the

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end of the day it is fruitless because there is no

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sustainable, durable earnings growth that's better than the

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US.

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There's questions about revenue and

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GDP for the US that come into this story

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and you wonder just sort of the growth story for the US

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if there is more of a thrust for buy America for

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these reasons. I mean, there was perhaps for other reasons

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at other times but we'll keep a close eye on

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that. Energy in terms of a sector,

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does it get any closer to leadership?

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You've been not so interested in energy for some time

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now, does this change things?

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No, it doesn't change things and I'll tell you why.

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I can't tell you if I'm right or wrong, obviously I don't

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have a crystal ball, but I will tell you why I think what I

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think. During energy crises what you usually see

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more often than not from the 12 months

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following you usually see crude fall and

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you usually see energy stocks underperform.

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Remember, the market, we just talked about, it is

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structurally different in terms of supply and demand

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dynamics right now. The US is a net exporter and

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shales produce and they produce at scale.

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The higher the oil price goes the more likely it is to

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call supply which means that the market resolves

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the price issue much faster than it would in

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something like the '70s and '80s.

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That's why you see this, in some ways, asymmetrical odds,

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meaning that the more energy outperforms the more it likely

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it has been a shock, the more you likely you want to sell

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it not buy it.

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I am not prone to chase.

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All of that said, I mean, I don't work at a hedge fund, I

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work at a long term-oriented asset manager, we're

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looking at 12-month time horizon so could it

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happen over the next month or two that energy continues

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to outperform? Absolutely.

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But I would look to be taking the other side of that

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as it does, not to chase it for a

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long term leadership or a sustainable holding.

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That is fascinating because it seems like a lot of people

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might think it would be the exact opposite of

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that. You mentioned tech just a minute ago, let's go there.

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Until a few days ago that was all

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we talked about and where it was going and the disruption

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that AI has provided across, really, a swath of

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industries and watching them get a bit

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taken out.

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Tell us a bit about other tech sell-offs.

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There's been some in very recent history and

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there's some that go back further.

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Feels different this time to a lot of people but tell us

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about the precedent.

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Some things are different this time and some things are

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very similar. I like the data.

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The data, we saw this in the tariff tantrum.

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We saw a massive derating of technology

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stocks. They put it down to basically median levels on

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a relative forward P/E basis going back to the '60s

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and that usually increases your risk-reward.

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We're well below those levels now.

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We're at the 38th percentile, the valuation

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of technology stocks.

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Again, back to is this a bubble, it's hard to call anything

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a bubble now when you're in the bottom half of the

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distribution for valuation.

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The interesting part from a starting point perspective, the

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bottom half of the distribution on valuation, it increases

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your risk-reward even if fundamentals turn against you.

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From this 38th percentile you have roughly

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70% odds of outperformance.

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Generally speaking, you would expect tech to outperform

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over the next 12 months.

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70 is not 100% odds but your risk-reward is favourable.

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Your risk-reward is favourable even if margins decline,

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which is to say that if you're concerned about

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AI and the software franchise, which I'll get to in a

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second,

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or CapEx expenditures sort of being a

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problem for free cash flow or being a problem for operating

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margins, some of that is already priced in.

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Your starting point is now much more advantageous.

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To me this looks like a shakeout that makes it

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more sustainable that technology is ultimate leadership.

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I will say that we have seen very rare data

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around the software franchise.

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It is rare that you see operating

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margins and, again, I'm going percentile rank for the

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software sector, 100th percentile.

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Operating margins have never been higher in the software

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industry.

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They are making money.

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Yes, they are making plenty of money.

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Now, given the shock, the relative forward P/E,

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and this is true for relative operating margins as well,

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but relative forward P/E is in the 14th percentile.

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That gap of 75%, if you look across

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all of the industries over all of time periods we

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have it only happens 2% of the time.

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It is very rare.

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Now, look, that 2% of the time, I work in probabilities and

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data, it's a coin flip as to whether or not that's

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a buy. I think that you could say, well, it's not a buy

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signal. The interesting part for me is it's not a sell

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signal either.

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On average once you reach that dislocation like,

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yeah, who doesn't know operating margins are going to come

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down when you're in sort of almost the bottom decile

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of valuation, so much of that is priced in

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there's not a whole lot of downside.

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Now, the additional interesting part is of those 2%

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of the time that you have it happen it's usually in a

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cyclical industry, transportation infrastructure or

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something like that, machinery, roads

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and rails, but you do see it in technology more often

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than not in semiconductors and hardware.

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When you've seen this dislocation in technology

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you actually have better than 50/50 odds.

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So it is very different this time.

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The differences, to me, say the downside

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might be limited in the dislocation area of the market

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that's software, and the rest of technology,

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which still looks like a beneficiary from the AI trade,

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is still in a positive risk-reward.

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Now, that doesn't mean that technology is the only sector

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that's going to go on to outperform.

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I do think that there's better areas of leadership, we've

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talked about industrials in the past, but I think

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technology, to me statistically, doesn't look so bad.

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This is even though... at least for

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software when you're talking about the operating margins

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which look great there seems to be

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this discussion of how long that's going to last.

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Is this a discussion for this is great leadership

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and so on for 12 months but then

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it catches up with them?

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What do you think?

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I think it depends on the creative

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destruction in software.

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Remember that technology as a sector has been

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able to remake itself many times in

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the past. Even when I look at the data the software that I

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call today is very different than the software of the

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2000s, which is very different than the software of the

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'70s.

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All of those software cycles at some point went extinct

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and it turned into new software or new

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whatever service providing solutions as

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it were. It has been a sector that's changed

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its stripes and that's why you see it in the data.

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When there's a shock and when, yes, everything's profitable

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right now but there is an intervention or a shock that

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may end up having creative destruction roots,

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what you do see is a sector that has historically speaking

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been able to restart itself.

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Yes, the duration matters but it also matters how

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productive the companies within it

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are. Yes, some companies will not be there but new

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companies may also be created.

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So you've got clients using software companies and those

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software companies themselves may become far more efficient

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at doing their jobs for clients.

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That is sort of the hope.

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That's really interesting.

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They are priced, I think you said before, as if they are

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going away.

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Is that right, like, that's how low.

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Yes, a 75% gap between your percentile rank on how

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profitable you are and your valuation, I would call that

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you're priced like you're going under.

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That's a fascinating place to look.

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Let's talk about some of the other sectors.

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You have mentioned industrials before.

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We've also talked about how some of the tech leaders and

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the hyperscalers and so on have changed their

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stripes a little bit. They're getting into other

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businesses, in some cases, hard assets for the energy

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side of what they're trying to do, and

15:14.440 --> 15:17.440
kind of the beneficiaries on that side, industrials is

15:17.440 --> 15:20.520
part of it because they've got to dig and build and do a

15:20.520 --> 15:22.520
lot of stuff to get this tech transition moving

15:23.640 --> 15:25.280
whether we've overpaid for it or not.

15:27.680 --> 15:30.800
I think tech CapEx has been part of the

15:30.800 --> 15:33.760
cycle that we have seen thus far in terms of supporting

15:33.760 --> 15:36.880
overall CapEx in the US economy but it hasn't been the

15:36.880 --> 15:39.560
entirety of the story, which is why you see manufacturing

15:39.560 --> 15:42.680
diffusion indices below 50, you have

15:42.680 --> 15:45.680
for the last three years, meaning that outside

15:45.680 --> 15:48.720
tech CapEx that was power specific you have not

15:48.720 --> 15:52.200
seen a broad resurgence of the manufacturing

15:52.200 --> 15:54.280
economy or industrial production.

15:54.280 --> 15:56.840
You are finally now seeing that take hold.

15:56.840 --> 15:59.920
We saw a massive inflection in new orders which

15:59.920 --> 16:03.200
usually means that a manufacturing recovery is sustainable

16:03.200 --> 16:06.080
and durable. Now, this all makes sense so you can't just

16:06.080 --> 16:08.160
say, oh, you're just betting on hope and just one data

16:08.160 --> 16:11.280
point, this all make a lot of sense with what we

16:11.280 --> 16:14.400
saw last year in terms of the tax cut was

16:14.400 --> 16:18.000
effectively a 700 basis point tax cut specifically

16:18.000 --> 16:20.960
designed for R&D and bonus depreciation,

16:20.960 --> 16:23.680
meaning that companies should invest more.

16:23.680 --> 16:27.200
We are seeing those incentives actually play out.

16:27.200 --> 16:30.160
Again, you've seen the Federal Reserve cut interest rates

16:30.160 --> 16:31.920
as inflation has slowed.

16:31.920 --> 16:34.520
I do think that's still my base case for this year.

16:34.520 --> 16:37.520
What was more important was that the level is much

16:37.520 --> 16:39.040
more rational.

16:39.040 --> 16:42.200
Instead of being 5 1/2% in terms of the

16:42.200 --> 16:45.240
Fed now we're arguing about should it be 3,

16:45.240 --> 16:46.640
should it be 3 1/2?

16:46.640 --> 16:47.760
You're in the zone.

16:48.800 --> 16:52.040
Interest rates are much more modestly priced for

16:52.080 --> 16:54.000
additional CapEx expenditures.

16:54.000 --> 16:56.640
When you have better interest rates and you have a tax

16:56.640 --> 16:59.880
incentive you are now finally seeing a manufacturing

16:59.920 --> 17:02.160
... it's not really a renaissance because I don't expect

17:02.200 --> 17:05.680
massive gangbusters growth, it's not going to run it hot

17:05.720 --> 17:09.360
but it's finally something that is inflecting higher after

17:09.360 --> 17:13.200
three years of basically being in a malaise.

17:13.240 --> 17:16.240
For the most part when I look through history this

17:16.280 --> 17:19.240
is more often true, there's a symmetry, meaning that

17:19.280 --> 17:21.920
if you had a contraction for three years you are more

17:21.960 --> 17:25.720
likely to have a recovery that is lasting and durable.

17:25.720 --> 17:28.440
I think that that's the key part because we are seeing that

17:28.440 --> 17:31.520
more and more. That gets to this it's just a

17:31.520 --> 17:34.240
grind it out economy. We keep having all of these shocks,

17:34.240 --> 17:37.080
and I think in a year we'll list another couple, we keep

17:37.080 --> 17:39.920
having these shocks but they don't produce enough downside

17:39.920 --> 17:43.240
for a recession and they make the cycle last longer because

17:43.240 --> 17:46.320
there's no excesses, there's no overall inflation,

17:46.320 --> 17:49.360
nothing is running hot, and that extends the cycle and

17:49.360 --> 17:51.280
extends the secular bull market.

17:51.320 --> 17:53.080
Better to have the implosion and build back, essentially,

17:55.920 --> 17:59.000
in terms of being able to have sustainable valuations.

18:01.840 --> 18:04.840
We have jobs coming out end of this week,

18:04.840 --> 18:07.080
won't ask you to go too far into that, I'm just kind of

18:07.080 --> 18:10.200
curious of sort of these sustainable building blocks that

18:10.240 --> 18:13.360
you've taken us through, you've taken us through the

18:13.400 --> 18:15.680
wage story a couple of different times, just

18:16.840 --> 18:19.800
broadly outline what you think the economy

18:19.800 --> 18:23.200
needs in the US to sustain and not rattle

18:23.200 --> 18:25.680
that piece of the Fed's decision making.

18:28.080 --> 18:31.320
I think the US economy is on good enough footing

18:31.320 --> 18:34.440
right now. I think that the Fed is in a stable enough place

18:34.480 --> 18:37.600
where I'm not sure the market or the economy needs them

18:37.640 --> 18:40.840
to cut to the extent that they can cut because

18:40.840 --> 18:43.840
inflation continues to decelerate, all the better.

18:43.840 --> 18:46.800
However, if inflation does end up

18:46.800 --> 18:49.800
staying stickier or ends up higher, if it is a function

18:49.840 --> 18:52.240
of growth, that's also not a bad part for the market.

18:54.320 --> 18:57.400
That's why I think there's not a lot of downside when you

18:57.400 --> 19:00.000
really look at interest rates, the why is more important.

19:00.000 --> 19:03.000
If the Fed is either raising, I don't think that they would

19:03.000 --> 19:05.280
raise interest rates, but is not lowering interest rates to

19:05.280 --> 19:08.480
the extent that we want them to as investors,

19:08.480 --> 19:11.960
because there is growth that's usually not a problem.

19:11.960 --> 19:15.560
The market's priced off of growth and that's the key.

19:15.560 --> 19:18.760
I think that what we've seen is pretty mediocre growth over

19:18.760 --> 19:21.520
the last three years, certainly over the last year, as much

19:21.520 --> 19:23.760
as people are saying, well, the quarter-on-quarter

19:23.760 --> 19:27.480
seasonally adjusted was almost 4% for GDP, and

19:27.480 --> 19:29.920
then you saw the quarter-on-quarter for the seasonally

19:29.920 --> 19:31.800
adjusted for the first quarter was much lower than

19:31.800 --> 19:35.720
expected. On a year-on-year basis they're both about 2%,

19:35.720 --> 19:37.920
which is what we used to consider stall speed.

19:37.920 --> 19:40.840
This is not a fully

19:40.840 --> 19:42.360
inflecting economy.

19:42.360 --> 19:45.680
I do expect that it's going to be hitting on more cylinders

19:45.680 --> 19:48.080
over the course of the next year but I think that when you

19:48.080 --> 19:51.320
consider what could that bring GDP to, maybe it's

19:51.320 --> 19:54.400
3, maybe it just over 3, it's not something

19:54.400 --> 19:56.000
like we used to talk about in the '90s

19:58.160 --> 20:00.200
like 4 1/2% real or 5% real. I think we're a long way from

20:00.200 --> 20:04.640
running it hot but we are a way into

20:04.640 --> 20:06.880
making this a durable cycle.

20:07.960 --> 20:11.080
That's really interesting in terms of the growth itself

20:11.120 --> 20:14.080
and where it goes because you wonder about sort

20:14.080 --> 20:17.040
of the global shocks that go on from what we're seeing in

20:17.080 --> 20:20.080
the Middle East and ultimately what that does to

20:20.080 --> 20:22.680
perhaps a more global inflationary story and really central

20:22.680 --> 20:25.800
banks around the world rather than the Fed question mark

20:25.800 --> 20:28.240
and what it can or needs to do.

20:28.280 --> 20:31.600
It does seem like other central banks are really

20:31.640 --> 20:33.200
at the ready for inflation.

20:35.600 --> 20:38.640
The interesting part about geopolitical shocks as

20:38.640 --> 20:41.480
it relates to oil, I mean, we can look at the oil embargo

20:41.480 --> 20:43.760
in the '70s and '80s and you can say, okay, there was a

20:43.760 --> 20:47.240
sustainable crude shock that led to inflation.

20:47.240 --> 20:49.360
You can kind of say the same thing with Russia and Ukraine.

20:49.360 --> 20:52.560
The interesting part about both of those is

20:52.560 --> 20:54.680
that it ended up in something else.

20:54.680 --> 20:57.840
It started with oil prices but

20:57.880 --> 21:00.960
it ended with a wage price spiral in the '70s and

21:01.000 --> 21:03.960
ended with supply chain disruptions, really

21:04.000 --> 21:05.480
from the reopening from COVID.

21:05.480 --> 21:08.360
Like I said, oil prices were down 20%.

21:08.360 --> 21:11.320
If you looked at the day Russia invaded Ukraine and said,

21:11.360 --> 21:13.560
I'm going to buy oil prices and I'm going to wake up a year

21:13.600 --> 21:16.600
later you lost 20%, you actually

21:16.600 --> 21:19.680
lost money. That's what I mean, oil price

21:19.680 --> 21:23.200
shocks are very rarely inflationary,

21:23.200 --> 21:26.280
sustainably inflationary and sustainably change the

21:26.280 --> 21:28.920
landscape. It's almost like they act like a tariff, meaning

21:28.920 --> 21:31.480
they act like a tax. They act like a shock.

21:31.480 --> 21:33.800
It does the reverse thing that you think it would.

21:33.800 --> 21:36.560
It reduces your real income if you're a consumer which

21:36.560 --> 21:39.320
means I'm more price sensitive not less price sensitive,

21:39.320 --> 21:42.280
and now in today's oil structure

21:42.280 --> 21:44.360
it calls more supply.

21:44.360 --> 21:47.360
With OECD producing as much as OPEC,

21:47.360 --> 21:50.120
they produce at all economically viable production.

21:50.120 --> 21:53.240
If you're talking about 80 to $100

21:53.240 --> 21:56.280
oil everything becomes economic,

21:56.280 --> 21:59.200
maybe not everything but many things become economic that

21:59.200 --> 22:00.840
haven't been in the past.

22:00.840 --> 22:03.360
What you see is it calls supply quicker and quicker each

22:03.360 --> 22:07.480
cycle. That's why I think as much as it's

22:07.480 --> 22:10.640
disturbing to see the energy price spike,

22:10.640 --> 22:14.360
the more it spikes the less sustainable it likely is.

22:14.360 --> 22:17.320
Price actually cures price, high prices cure

22:17.320 --> 22:18.120
high prices.

22:18.120 --> 22:20.680
But as you mentioned, sometimes things show up elsewhere

22:20.680 --> 22:24.040
and that's often a knock-on effect in any economy.

22:25.720 --> 22:28.840
Given what the economy has been working through with

22:28.840 --> 22:31.840
questions about some private credit, not all of it, but

22:31.840 --> 22:34.920
overinvestment maybe in AI, we don't know, and

22:34.920 --> 22:38.160
the interworkings of that then saddled with

22:38.160 --> 22:41.160
what looks like an oil shock internationally,

22:41.160 --> 22:44.120
certainly, maybe not to the US ultimately, when you sort

22:44.120 --> 22:47.200
of put things together and have building blocks, I'd just

22:47.200 --> 22:49.440
turn it back to you, can you still see the growth, can you

22:49.440 --> 22:52.280
see the powering through here of equity markets.

22:52.280 --> 22:55.360
It's interesting. I always say Goldilocks actually has

22:55.360 --> 22:58.040
the highest odds. The way you just articulated it it seems

22:58.040 --> 23:01.240
like the global economy would sort of cripple under

23:01.240 --> 23:02.760
all of that pressure.

23:02.760 --> 23:05.960
I think because they are in pockets, what you

23:05.960 --> 23:08.880
see is in pockets, and rolling shocks, we

23:09.920 --> 23:11.280
see that historically all the time.

23:11.280 --> 23:14.480
We saw it with the banking crisis in, what was that,

23:14.480 --> 23:15.480
2023.

23:15.920 --> 23:19.080
You think, well, the US can't possibly grow through a

23:19.080 --> 23:22.400
banking crisis, and yet we did.

23:22.400 --> 23:25.080
When you think about private credit, well, private credit

23:25.080 --> 23:28.280
is less than half of all credit in the

23:28.280 --> 23:30.640
US, what if we had deregulation in the banking system that

23:30.640 --> 23:32.800
made it more likely that banks were actually going to take

23:32.840 --> 23:34.520
share? That's possible.

23:34.520 --> 23:37.760
I think that we always uniquely focus on

23:37.760 --> 23:40.880
all of the headwinds but forget about

23:40.880 --> 23:42.320
all of the tailwinds.

23:42.320 --> 23:45.000
I think that's what history shows you, recessions are

23:45.000 --> 23:46.320
really rare.

23:46.320 --> 23:49.400
As much as you want to focus on those headwinds you must

23:49.400 --> 23:52.400
sort of pull yourself back to what

23:52.400 --> 23:53.920
could go right.

23:53.920 --> 23:56.640
I think that that's the way you want to think when the VIX

23:56.640 --> 24:00.160
is closer to 30, which is where we've been-ish

24:00.160 --> 24:01.440
every time we have a shock.

24:01.440 --> 24:04.560
That's top decile VIX you see more fear in the equity

24:04.560 --> 24:07.040
market, you're still seeing not a lot of fear in the

24:07.040 --> 24:10.280
overall credit market even with technology actually

24:10.280 --> 24:12.960
creeping a little wider in the investment credit space.

24:13.000 --> 24:14.640
Overall, credit's fine.

24:14.680 --> 24:16.840
There maybe are pockets that are weaker but it's not

24:16.880 --> 24:18.800
sustainably weaker across the board.

24:18.800 --> 24:20.360
There's more fear on the equity market.

24:20.400 --> 24:23.520
The more you see that mathematically the more likely it is

24:23.520 --> 24:26.720
that the market is likely to climb the wall of worry

24:26.720 --> 24:30.280
as opposed to have something like a meaningful,

24:30.280 --> 24:32.120
sustainable downtrend in capital.

24:32.120 --> 24:34.280
I think you need to put it somewhere very, I don't know if

24:34.280 --> 24:37.120
it's at the top of your computer or somewhere else, but you

24:37.120 --> 24:40.520
need to put Goldilocks, it has highest odds.

24:40.520 --> 24:43.120
Is that yours? I feel like that's yours.

24:43.120 --> 24:44.320
You should brand that.

24:44.320 --> 24:46.080
I didn't take it from somebody else.

24:46.080 --> 24:47.440
I really think that's fabulous, and

24:49.240 --> 24:51.320
uplifting as well.

24:51.320 --> 24:53.760
Take us through in our last few minutes, we'll go through

24:53.760 --> 24:55.800
top sectors, bottom sectors.

24:55.800 --> 24:58.840
You have laid out a number

24:58.840 --> 25:01.480
of reasons for why for each of these but let's just go

25:01.520 --> 25:02.520
through the actual.

25:04.280 --> 25:06.240
Industrials would be the top still.

25:06.240 --> 25:08.520
We talked about it last week or two weeks ago, whenever we

25:08.520 --> 25:11.280
spoke, and I do think it's the sustainable and durable

25:11.280 --> 25:13.880
industrial recovery, which means that industrial production

25:13.880 --> 25:17.080
is likely to grow faster than consumption which is

25:17.080 --> 25:19.800
historically rare, happens less than 20% of the time, and

25:19.800 --> 25:22.640
usually gives a sustainable boost to industrials.

25:22.640 --> 25:23.960
Industrials is a tricky sector.

25:23.960 --> 25:26.840
I think if you wanted to own the overall sector you don't

25:26.840 --> 25:29.520
get a lot of bang for your buck in terms of cyclicality.

25:29.520 --> 25:31.360
You have to be pretty specific.

25:31.360 --> 25:34.440
Machinery and transports look really interesting to

25:34.440 --> 25:37.560
me in terms of the starting point on valuation and the

25:37.560 --> 25:39.960
starting point in terms of the manufacturing recovery.

25:39.960 --> 25:42.640
So, industrials is number one, financials is still number

25:42.640 --> 25:45.760
two and we will see how the financial sort of

25:45.760 --> 25:48.960
sector overall absorbs the hits from, or

25:48.960 --> 25:51.800
concerns about, private credit. Like I said, what intrigues

25:51.800 --> 25:54.800
me most about financials is the fact that valuation

25:54.800 --> 25:56.480
has provided a lot of support.

25:56.480 --> 25:59.560
It doesn't mean you have to have upside but it does

25:59.560 --> 26:02.320
mean your downside is more limited than you think, which

26:02.320 --> 26:05.640
means that you create a risk-reward for something to go

26:05.640 --> 26:08.680
right. I'm still intrigued by the

26:08.680 --> 26:10.040
financial sector.

26:10.040 --> 26:12.800
Then within consumer discretionary I'm intrigued by

26:12.800 --> 26:15.840
homebuilders and the housing sector which has been in

26:15.840 --> 26:19.120
its own rolling recession which, again, if crude shocks

26:19.120 --> 26:22.240
act almost like a disinflation, like a tariff, like

26:22.240 --> 26:25.440
a tax, and high prices cure high prices, we might still

26:25.440 --> 26:28.600
see that sustainable degradation of disinflation,

26:28.600 --> 26:30.920
which means that rates can be lower over time, which means

26:30.920 --> 26:33.320
that mortgage rates are lower as well, which I think just

26:33.320 --> 26:36.400
recently dipped below six, which creates a much

26:36.400 --> 26:39.480
better situation for the housing entirely.

26:39.480 --> 26:42.520
Valuation on relative price-to-book is also in the bottom

26:42.520 --> 26:44.720
quartile, which means that if you think that there's bad

26:44.720 --> 26:47.840
news in the housing market a lot of that is also priced in.

26:47.840 --> 26:50.400
Those are sort of my top three, industrials, financials and

26:50.400 --> 26:51.400
consumer discretionary.

26:51.400 --> 26:53.800
On the bottom three I'll say consumer staples and

26:53.800 --> 26:57.000
utilities, the two classic defensive sectors.

26:57.000 --> 27:00.440
I think that the more they rotate in terms of concerns

27:00.440 --> 27:03.760
over what might happen with the oil price spike

27:03.760 --> 27:05.920
the more likely I am to be underweight.

27:05.960 --> 27:08.760
I don't own them but if I did those would be sort of my

27:08.760 --> 27:11.560
go-to sales. I'm going to have to add in energy.

27:11.560 --> 27:13.000
Again, I'm not going to tell you that I'm going to be right

27:13.000 --> 27:15.200
over the next month or two but I'm going to tell you why I

27:15.200 --> 27:18.200
think it, after energy price spikes you usually

27:18.200 --> 27:21.240
see crude fall over the 12 months and you usually

27:21.240 --> 27:23.560
energy stocks underperform.

27:23.560 --> 27:26.320
Fascinating. The staples complex and the sort of safety

27:26.320 --> 27:29.560
defence type stocks were getting an awful lot of attention

27:29.560 --> 27:32.560
due to the AI disruptions long before even we

27:32.560 --> 27:35.200
saw the oil story come in there.

27:35.200 --> 27:37.360
Some lofty interesting moments.

27:37.360 --> 27:39.680
Denise Chisholm, we are always so grateful to see you.

27:39.680 --> 27:41.480
Thank you very, very much for sharing your research with us

27:41.480 --> 27:45.360
and your brains. We'll see you soon.

27:45.360 --> 27:46.160
Great to be back.

27:47.200 --> 27:51.120
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FidelityConnects: Denise Chisholm: Sector watch – March 5, 2026

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