Denise Chisholm uncovers valuable insights by leveraging historical data and overlooked relationships in the equity market.
Chisholm highlights the connection between faltering housing prices and default implications on Countrywide's mortgage portfolio during the Global Financial Crisis.
Chisholm shares her positive view on the energy sector due to low capital spending and high free cash flow.
Deep dives
Understanding Risk and Opportunity in the Equity Market
Denise Chisholm, a sector strategist at Fidelity Investments, discusses her probability-based framework for evaluating risk and opportunity in the equity market. By leveraging historical data and overlooked relationships, Chisholm uncovers valuable insights. She highlights the connection between faltering housing prices and default implications on Countrywide's mortgage portfolio during the Global Financial Crisis. Chisholm also explores the reaction of the long end of the yield curve to Fed tightening cycles and the strong recovery in wages correlated with the outperformance of cyclicals over defenses. Additionally, she shares her positive view on the energy sector due to low capital spending and high free cash flow.
The Importance of Historical Data in Market Analysis
Chisholm emphasizes the value of historical data in understanding market dynamics and making informed investment decisions. She argues that looking at real-world examples and not just financial theory provides a more accurate and comprehensive understanding of market behavior. Chisholm's approach focuses on probabilities and historical patterns, allowing her to identify potential risks and opportunities that may not be evident from traditional valuation models or fundamental analysis.
Valuation Spreads and Market Fear
Chisholm discusses the significance of valuation spreads as an underutilized tool for assessing market fear and potential market bottoms. She explains that valuation spreads, which measure the difference in valuation between risky and safe assets, provide insights into investor sentiment and the likelihood of a market recovery. Chisholm notes that during periods of market dislocation, valuation spreads tend to flatten out, indicating a potential turning point for the market.
Energy Sector's Unique Opportunities and Diversification Benefits
Chisholm delves into the unique opportunities and diversification benefits offered by the energy sector. She highlights that the energy sector is currently cheap and has a strong potential for multiple expansion due to underestimated earnings. Chisholm also explains how energy stocks have evolved beyond being solely an inflation play, with changing dynamics in capex and the potential for a significant rise in energy prices in the future. This makes the energy sector an interesting investment option with potential upside.
Promoting Women in Finance and the Importance of Diversity
Chisholm reflects on the underrepresentation of women in the financial industry and the need for greater diversity. She emphasizes the importance of different perspectives and debates in driving better investment outcomes. Chisholm highlights the efforts to promote women in finance and shares her belief that showing young women the interesting and rewarding aspects of a career in finance early on can help increase diversity and representation in the field.
If you asked yourself, “what are the odds?”, Denise Chisholm can probably tell you insofar as market outcomes are concerned. A Sector Strategist at Fidelity Investments, Denise leverages historical data as part of a probability framework that helps her evaluate risk and opportunity in the equity market. Our conversation explores episodes when her process uncovered overlooked relationships that were hiding in plain sight. During the GFC, for instance, Denise connected faltering housing prices with default implications on Country Wide’s mortgage portfolio. Her work on probability is sometimes multi-layered. For instance, in evaluating the reaction of the long end of the yield curve to Fed tightening cycles, Denise found that conditional on the Leading Economic Indicator Index falling the 10 year yield increased only 30% of the time when policy was tightened.
More currently, we discuss what Denise sees in markets today. Here she observes a strong recovery in wages from the Covid bottom as correlated to outperformance of cyclicals over defensive. Lastly, she shares a strong view on the energy sector linked to a combination of low capital spending and high free cash flows. As we round out our discussion, I solicit Denise’s views on the state of progress for women in the field of finance. And here, unsurprisingly, she’s focused on the numbers, viewing plenty of upside in the 20% of women that comprise senior leadership roles in financial services. Progress here can result from showing women at a young age just how interesting and rewarding a career in finance can be. I hope you enjoy this episode of the Alpha Exchange, my conversation with Denise Chisholm.
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