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

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kind of the beneficiaries on that side, industrials is

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part of it because they've got to dig and build and do a

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lot of stuff to get this tech transition moving

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whether we've overpaid for it or not.

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I think tech CapEx has been part of the

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cycle that we have seen thus far in terms of supporting

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overall CapEx in the US economy but it hasn't been the

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entirety of the story, which is why you see manufacturing

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diffusion indices below 50, you have

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for the last three years, meaning that outside

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tech CapEx that was power specific you have not

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seen a broad resurgence of the manufacturing

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economy or industrial production.

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You are finally now seeing that take hold.

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We saw a massive inflection in new orders which

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usually means that a manufacturing recovery is sustainable

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and durable. Now, this all makes sense so you can't just

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say, oh, you're just betting on hope and just one data

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point, this all make a lot of sense with what we

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saw last year in terms of the tax cut was

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effectively a 700 basis point tax cut specifically

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designed for R&D and bonus depreciation,

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meaning that companies should invest more.

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We are seeing those incentives actually play out.

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Again, you've seen the Federal Reserve cut interest rates

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as inflation has slowed.

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I do think that's still my base case for this year.

[00:16:34.520]

What was more important was that the level is much

[00:16:37.520]

more rational.

[00:16:39.040]

Instead of being 5 1/2% in terms of the

[00:16:42.200]

Fed now we're arguing about should it be 3,

[00:16:45.240]

should it be 3 1/2?

[00:16:46.640]

You're in the zone.

[00:16:48.800]

Interest rates are much more modestly priced for

[00:16:52.080]

additional CapEx expenditures.

[00:16:54.000]

When you have better interest rates and you have a tax

[00:16:56.640]

incentive you are now finally seeing a manufacturing

[00:16:59.920]

... it's not really a renaissance because I don't expect

[00:17:02.200]

massive gangbusters growth, it's not going to run it hot

[00:17:05.720]

but it's finally something that is inflecting higher after

[00:17:09.360]

three years of basically being in a malaise.

[00:17:13.240]

For the most part when I look through history this

[00:17:16.280]

is more often true, there's a symmetry, meaning that

[00:17:19.280]

if you had a contraction for three years you are more

[00:17:21.960]

likely to have a recovery that is lasting and durable.

[00:17:25.720]

I think that that's the key part because we are seeing that

[00:17:28.440]

more and more. That gets to this it's just a

[00:17:31.520]

grind it out economy. We keep having all of these shocks,

[00:17:34.240]

and I think in a year we'll list another couple, we keep

[00:17:37.080]

having these shocks but they don't produce enough downside

[00:17:39.920]

for a recession and they make the cycle last longer because

[00:17:43.240]

there's no excesses, there's no overall inflation,

[00:17:46.320]

nothing is running hot, and that extends the cycle and

[00:17:49.360]

extends the secular bull market.

[00:17:51.320]

Better to have the implosion and build back, essentially,

[00:17:55.920]

in terms of being able to have sustainable valuations.

[00:18:01.840]

We have jobs coming out end of this week,

[00:18:04.840]

won't ask you to go too far into that, I'm just kind of

[00:18:07.080]

curious of sort of these sustainable building blocks that

[00:18:10.240]

you've taken us through, you've taken us through the

[00:18:13.400]

wage story a couple of different times, just

[00:18:16.840]

broadly outline what you think the economy

[00:18:19.800]

needs in the US to sustain and not rattle

[00:18:23.200]

that piece of the Fed's decision making.

[00:18:28.080]

I think the US economy is on good enough footing

[00:18:31.320]

right now. I think that the Fed is in a stable enough place

[00:18:34.480]

where I'm not sure the market or the economy needs them

[00:18:37.640]

to cut to the extent that they can cut because

[00:18:40.840]

inflation continues to decelerate, all the better.

[00:18:43.840]

However, if inflation does end up

[00:18:46.800]

staying stickier or ends up higher, if it is a function

[00:18:49.840]

of growth, that's also not a bad part for the market.

[00:18:54.320]

That's why I think there's not a lot of downside when you

[00:18:57.400]

really look at interest rates, the why is more important.

[00:19:00.000]

If the Fed is either raising, I don't think that they would

[00:19:03.000]

raise interest rates, but is not lowering interest rates to

[00:19:05.280]

the extent that we want them to as investors,

[00:19:08.480]

because there is growth that's usually not a problem.

[00:19:11.960]

The market's priced off of growth and that's the key.

[00:19:15.560]

I think that what we've seen is pretty mediocre growth over

[00:19:18.760]

the last three years, certainly over the last year, as much

[00:19:21.520]

as people are saying, well, the quarter-on-quarter

[00:19:23.760]

seasonally adjusted was almost 4% for GDP, and

[00:19:27.480]

then you saw the quarter-on-quarter for the seasonally

[00:19:29.920]

adjusted for the first quarter was much lower than

[00:19:31.800]

expected. On a year-on-year basis they're both about 2%,

[00:19:35.720]

which is what we used to consider stall speed.

[00:19:37.920]

This is not a fully

[00:19:40.840]

inflecting economy.

[00:19:42.360]

I do expect that it's going to be hitting on more cylinders

[00:19:45.680]

over the course of the next year but I think that when you

[00:19:48.080]

consider what could that bring GDP to, maybe it's

[00:19:51.320]

3, maybe it just over 3, it's not something

[00:19:54.400]

like we used to talk about in the '90s

[00:19:58.160]

like 4 1/2% real or 5% real. I think we're a long way from

[00:20:00.200]

running it hot but we are a way into

[00:20:04.640]

making this a durable cycle.

[00:20:07.960]

That's really interesting in terms of the growth itself

[00:20:11.120]

and where it goes because you wonder about sort

[00:20:14.080]

of the global shocks that go on from what we're seeing in

[00:20:17.080]

the Middle East and ultimately what that does to

[00:20:20.080]

perhaps a more global inflationary story and really central

[00:20:22.680]

banks around the world rather than the Fed question mark

[00:20:25.800]

and what it can or needs to do.

[00:20:28.280]

It does seem like other central banks are really

[00:20:31.640]

at the ready for inflation.

[00:20:35.600]

The interesting part about geopolitical shocks as

[00:20:38.640]

it relates to oil, I mean, we can look at the oil embargo

[00:20:41.480]

in the '70s and '80s and you can say, okay, there was a

[00:20:43.760]

sustainable crude shock that led to inflation.

[00:20:47.240]

You can kind of say the same thing with Russia and Ukraine.

[00:20:49.360]

The interesting part about both of those is

[00:20:52.560]

that it ended up in something else.

[00:20:54.680]

It started with oil prices but

[00:20:57.880]

it ended with a wage price spiral in the '70s and

[00:21:01.000]

ended with supply chain disruptions, really

[00:21:04.000]

from the reopening from COVID.

[00:21:05.480]

Like I said, oil prices were down 20%.

[00:21:08.360]

If you looked at the day Russia invaded Ukraine and said,

[00:21:11.360]

I'm going to buy oil prices and I'm going to wake up a year

[00:21:13.600]

later you lost 20%, you actually

[00:21:16.600]

lost money. That's what I mean, oil price

[00:21:19.680]

shocks are very rarely inflationary,

[00:21:23.200]

sustainably inflationary and sustainably change the

[00:21:26.280]

landscape. It's almost like they act like a tariff, meaning

[00:21:28.920]

they act like a tax. They act like a shock.

[00:21:31.480]

It does the reverse thing that you think it would.

[00:21:33.800]

It reduces your real income if you're a consumer which

[00:21:36.560]

means I'm more price sensitive not less price sensitive,

[00:21:39.320]

and now in today's oil structure

[00:21:42.280]

it calls more supply.

[00:21:44.360]

With OECD producing as much as OPEC,

[00:21:47.360]

they produce at all economically viable production.

[00:21:50.120]

If you're talking about 80 to $100

[00:21:53.240]

oil everything becomes economic,

[00:21:56.280]

maybe not everything but many things become economic that

[00:21:59.200]

haven't been in the past.

[00:22:00.840]

What you see is it calls supply quicker and quicker each

[00:22:03.360]

cycle. That's why I think as much as it's

[00:22:07.480]

disturbing to see the energy price spike,

[00:22:10.640]

the more it spikes the less sustainable it likely is.

[00:22:14.360]

Price actually cures price, high prices cure

[00:22:17.320]

high prices.

[00:22:18.120]

But as you mentioned, sometimes things show up elsewhere

[00:22:20.680]

and that's often a knock-on effect in any economy.

[00:22:25.720]

Given what the economy has been working through with

[00:22:28.840]

questions about some private credit, not all of it, but

[00:22:31.840]

overinvestment maybe in AI, we don't know, and

[00:22:34.920]

the interworkings of that then saddled with

[00:22:38.160]

what looks like an oil shock internationally,

[00:22:41.160]

certainly, maybe not to the US ultimately, when you sort

[00:22:44.120]

of put things together and have building blocks, I'd just

[00:22:47.200]

turn it back to you, can you still see the growth, can you

[00:22:49.440]

see the powering through here of equity markets.

[00:22:52.280]

It's interesting. I always say Goldilocks actually has

[00:22:55.360]

the highest odds. The way you just articulated it it seems

[00:22:58.040]

like the global economy would sort of cripple under

[00:23:01.240]

all of that pressure.

[00:23:02.760]

I think because they are in pockets, what you

[00:23:05.960]

see is in pockets, and rolling shocks, we

[00:23:09.920]

see that historically all the time.

[00:23:11.280]

We saw it with the banking crisis in, what was that,

[00:23:14.480]

2023.

[00:23:15.920]

You think, well, the US can't possibly grow through a

[00:23:19.080]

banking crisis, and yet we did.

[00:23:22.400]

When you think about private credit, well, private credit

[00:23:25.080]

is less than half of all credit in the

[00:23:28.280]

US, what if we had deregulation in the banking system that

[00:23:30.640]

made it more likely that banks were actually going to take

[00:23:32.840]

share? That's possible.

[00:23:34.520]

I think that we always uniquely focus on

[00:23:37.760]

all of the headwinds but forget about

[00:23:40.880]

all of the tailwinds.

[00:23:42.320]

I think that's what history shows you, recessions are

[00:23:45.000]

really rare.

[00:23:46.320]

As much as you want to focus on those headwinds you must

[00:23:49.400]

sort of pull yourself back to what

[00:23:52.400]

could go right.

[00:23:53.920]

I think that that's the way you want to think when the VIX

[00:23:56.640]

is closer to 30, which is where we've been-ish

[00:24:00.160]

every time we have a shock.

[00:24:01.440]

That's top decile VIX you see more fear in the equity

[00:24:04.560]

market, you're still seeing not a lot of fear in the

[00:24:07.040]

overall credit market even with technology actually

[00:24:10.280]

creeping a little wider in the investment credit space.

[00:24:13.000]

Overall, credit's fine.

[00:24:14.680]

There maybe are pockets that are weaker but it's not

[00:24:16.880]

sustainably weaker across the board.

[00:24:18.800]

There's more fear on the equity market.

[00:24:20.400]

The more you see that mathematically the more likely it is

[00:24:23.520]

that the market is likely to climb the wall of worry

[00:24:26.720]

as opposed to have something like a meaningful,

[00:24:30.280]

sustainable downtrend in capital.

[00:24:32.120]

I think you need to put it somewhere very, I don't know if

[00:24:34.280]

it's at the top of your computer or somewhere else, but you

[00:24:37.120]

need to put Goldilocks, it has highest odds.

[00:24:40.520]

Is that yours? I feel like that's yours.

[00:24:43.120]

You should brand that.

[00:24:44.320]

I didn't take it from somebody else.

[00:24:46.080]

I really think that's fabulous, and

[00:24:49.240]

uplifting as well.

[00:24:51.320]

Take us through in our last few minutes, we'll go through

[00:24:53.760]

top sectors, bottom sectors.

[00:24:55.800]

You have laid out a number

[00:24:58.840]

of reasons for why for each of these but let's just go

[00:25:01.520]

through the actual.

[00:25:04.280]

Industrials would be the top still.

[00:25:06.240]

We talked about it last week or two weeks ago, whenever we

[00:25:08.520]

spoke, and I do think it's the sustainable and durable

[00:25:11.280]

industrial recovery, which means that industrial production

[00:25:13.880]

is likely to grow faster than consumption which is

[00:25:17.080]

historically rare, happens less than 20% of the time, and

[00:25:19.800]

usually gives a sustainable boost to industrials.

[00:25:22.640]

Industrials is a tricky sector.

[00:25:23.960]

I think if you wanted to own the overall sector you don't

[00:25:26.840]

get a lot of bang for your buck in terms of cyclicality.

[00:25:29.520]

You have to be pretty specific.

[00:25:31.360]

Machinery and transports look really interesting to

[00:25:34.440]

me in terms of the starting point on valuation and the

[00:25:37.560]

starting point in terms of the manufacturing recovery.

[00:25:39.960]

So, industrials is number one, financials is still number

[00:25:42.640]

two and we will see how the financial sort of

[00:25:45.760]

sector overall absorbs the hits from, or

[00:25:48.960]

concerns about, private credit. Like I said, what intrigues

[00:25:51.800]

me most about financials is the fact that valuation

[00:25:54.800]

has provided a lot of support.

[00:25:56.480]

It doesn't mean you have to have upside but it does

[00:25:59.560]

mean your downside is more limited than you think, which

[00:26:02.320]

means that you create a risk-reward for something to go

[00:26:05.640]

right. I'm still intrigued by the

[00:26:08.680]

financial sector.

[00:26:10.040]

Then within consumer discretionary I'm intrigued by

[00:26:12.800]

homebuilders and the housing sector which has been in

[00:26:15.840]

its own rolling recession which, again, if crude shocks

[00:26:19.120]

act almost like a disinflation, like a tariff, like

[00:26:22.240]

a tax, and high prices cure high prices, we might still

[00:26:25.440]

see that sustainable degradation of disinflation,

[00:26:28.600]

which means that rates can be lower over time, which means

[00:26:30.920]

that mortgage rates are lower as well, which I think just

[00:26:33.320]

recently dipped below six, which creates a much

[00:26:36.400]

better situation for the housing entirely.

[00:26:39.480]

Valuation on relative price-to-book is also in the bottom

[00:26:42.520]

quartile, which means that if you think that there's bad

[00:26:44.720]

news in the housing market a lot of that is also priced in.

[00:26:47.840]

Those are sort of my top three, industrials, financials and

[00:26:50.400]

consumer discretionary.

[00:26:51.400]

On the bottom three I'll say consumer staples and

[00:26:53.800]

utilities, the two classic defensive sectors.

[00:26:57.000]

I think that the more they rotate in terms of concerns

[00:27:00.440]

over what might happen with the oil price spike

[00:27:03.760]

the more likely I am to be underweight.

[00:27:05.960]

I don't own them but if I did those would be sort of my

[00:27:08.760]

go-to sales. I'm going to have to add in energy.

[00:27:11.560]

Again, I'm not going to tell you that I'm going to be right

[00:27:13.000]

over the next month or two but I'm going to tell you why I

[00:27:15.200]

think it, after energy price spikes you usually

[00:27:18.200]

see crude fall over the 12 months and you usually

[00:27:21.240]

energy stocks underperform.

[00:27:23.560]

Fascinating. The staples complex and the sort of safety

[00:27:26.320]

defence type stocks were getting an awful lot of attention

[00:27:29.560]

due to the AI disruptions long before even we

[00:27:32.560]

saw the oil story come in there.

[00:27:35.200]

Some lofty interesting moments.

[00:27:37.360]

Denise Chisholm, we are always so grateful to see you.

[00:27:39.680]

Thank you very, very much for sharing your research with us

[00:27:41.480]

and your brains. We'll see you soon.

[00:27:45.360]

Great to be back.

[00:27:47.200]

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[00:27:51.120]

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

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