Kingsview CIO Scott Martin discusses market expectations and the response to recent tech earnings reports.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: Meanwhile, do want to draw your attention. We are showing the Nasdaq for a reason, down three hundred forty-five points right now, led by big declines in the likes of Amazon and Microsoft and Alphabet and a host of others. The heavyweights that were leading the parade are now leading the exit from the parade for now. Scott Martin, Kingsview Asset Management. We’ve got Jack Macintyre, Brandywine Global Portfolio Manager. Scott, to you first off, If I had a dime for every time I’ve seen the Great Correction and ensue technology stocks and titans. I’d have a lot of dimes right there. So the latest argument is they’re coming back to Earth because interest rates are rising. Capital gains taxes could be rising. A good excuse to sell these high flyers while you still can make some money. So is this time any different from some of the prior.
SCOTT MARTIN: Yeah, and you could have made a few dimes plus, Neil, if you actually bought into those corrections and actually tried to avoid the fear trade that was out there in the selling and actually take advantage of lower prices. Look, these tech stocks, these high flyers, these momentum plays don’t like the notion of higher interest rates. We’ve learned that a lot this year. Here’s the one discouraging thing, though, Neil. The companies you mentioned earlier on, the Apples, the Googles, the Microsoft, the Amazons, all had blowout earnings of recent notes the last couple of weeks or so. Some of the earnings reports that these companies had were amazing. And the company stocks have not gone up since they went up for like a day after and then pulled back considerably in some cases sense that’s a little discouraging from the standpoint of what the market was expecting, what the market got and what we’re seeing from the stock prices themselves.
CAVUTO: You know, maybe adding some soul to the selling wound today, Jack, was this news out of Janet Yellen at this Atlantic conference in which she said that rates would have to raise somewhat to keep the economy from overheating? I don’t think she said anything that the average market watchers would be stunned by, but maybe coming as it does a week after we heard from the Fed chairman, the president, Fed Chairman Jerome Powell, say that that was unlikely. I’m wondering what’s going on here. What do you think?
JACK MCINTYRE: So, you know, we’ve had rates move up pretty significantly since August of last year than in February and March, the long rates really started accelerate. So, you know that I think that’s sort of reflective. Neil, one of the things I think might be going on as we get into twenty twenty one, you know, markets are forward looking. They’re going to start looking at twenty twenty two. Hey, we’re we’re probably at peak economic growth, peak earnings growth, you know, and certainly a peak fiscal stimulus. So I don’t know. And I’m again, I’m not trying to pick a top in the market, but I just to me, it kind of makes sense that we start to see maybe a little bit more two way flows in certain sectors. And tech is certainly one of those.
CAVUTO: Yeah, you know, it’s hard to glean trends in a market like this, but it’s one that bears watching and we’ll keep watching it Scott and Jack, thank you both very, very much.
Click here for the full commentary.
PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 5.5.21
Economic growth is heating up as consumers spend more, businesses ramp up activity and record amounts of government stimulus flow through the system. In general, this is great news and represents the rosiest scenario that economists could have imagined just a year ago. However, such exceptional growth and market returns also call into question the sustainability of the business cycle. How can investors maintain balance in their portfolios when both the economy and markets are soaring?
First, it is important to understand how quickly the overall economy has recovered. Last week’s GDP report showed that the economy grew by an annual pace of 6.4% in the first quarter. Not only is this well above the historical average of around 2%, but it also follows stellar growth rates of 33.4% and 4.3% in Q3 and Q4 2020, respectively. At this point, real economic activity is less than one percent below its pre-pandemic level. Many other data, from manufacturing activity to retail sales, are near once-in-a-lifetime levels.
THE ECONOMY HAS NEARLY RETURNED TO PRE-PANDEMIC LEVELS
1. GDP grew by 6.4% in the first quarter compared to the final quarter of 2020. This is one of the fastest growth rates in decades and puts the level of activity within less than a percent of its pre-pandemic level.
2. Although the National Bureau of Economic Research has not yet declared an end to the recession, there have now been three consecutive strong quarters of growth.
In many ways, resurgent growth should not be surprising. Even during last year’s lockdowns, factories and equipment were still in working order, employees maintained their training and skills, and those businesses with strong balance sheets were able to reopen quickly. Businesses in some industries were either unaffected or were positioned to thrive.
Economists often refer to this type of rebound as “transition dynamics” – i.e., the economy accelerating to catch up after a crisis, made possible because the productive capacity of the country was still intact. This is in stark contrast to the 2008 global financial crisis when much of the business activity leading up to it became less valuable overnight.
Thus, the second factor for investors to consider is that policymakers learned in 2008 that fiscal and monetary stimulus could play significant roles during the early stages of recoveries. After all, supporting households can be important when the contribution of consumer spending to GDP has only grown over the past two decades, outpacing both business investment and government spending in relative terms. The fact that the financial crisis and the pandemic differ significantly has not affected the policy playbook. Supporting those sectors and individuals that are still struggling is one reason Congress and the Fed continue to provide economic stimulus and keep interest rates low.
CONSUMPTION SPENDING IS EVEN MORE IMPORTANT TODAY
1. One reason both Congress and the Fed continue to provide economic stimulus, via government spending and low interest rates, respectively, is that some sectors and individuals are still struggling despite the overall economic boom.
2. The chart above shows the make-up of economic activity today and in the past. Consumption spending by households and individuals has only grown relative to business investment and government spending.
Of course, the long-term effects of such freely flowing money is controversial, especially when it comes to its impact on inflation. At the moment, there is evidence of rising inflation in certain areas, especially among economically important commodities, as well as overall prices coming off their pandemic lows. However, the long-term, runaway inflation that many fear has not been experienced in the U.S. since the early 1980s since technology and globalization tend to make goods and services cheaper. This does not mean that sustainably higher inflation isn’t possible, but that these forces would need to either reverse or be overcome. Ultimately, the Fed has made it clear that they would welcome higher inflation expectations among businesses and consumers.
INFLATION FEARS LINGER AS THE LABOR MARKET IMPROVES
1. Although recent inflation statistics, such as CPI at 2.6% and PCE at 2.3%, are only somewhat higher, some economists and investors worry about the long-term consequences of government stimulus.
2. Over the past forty years, however, inflation has tended to stall out during the business cycle even as unemployment continues to fall.
Finally, and perhaps most importantly for investors in this environment, the economy and markets are connected but only loosely so. They often appear to be tied together by a bungee cord – the market can move further and faster than the economy for a time, but one or the other will eventually need to adjust. In hindsight, the market will seem either rational or irrational based on whether the economy catches up, as it has successfully done over the past year.
Unlike last spring, however, valuations today are near historic highs and some economic risk factors, including rising inflation, are already affecting investment portfolios. The economy is growing rapidly, justifying the enthusiasm in the stock market over the past year. For long-term investors, it is more important than ever to stay disciplined and to stick to well-considered financial plans.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021-194)
Kingsview CIO Scott Martin discusses how the stimulus has affected consumer demand in technology. He also addresses capital gains tax rates, income tax rates, and market volatility.
Program: Your World with Neil Cavuto
Station: Fox News Channel
NEIL CAVUTO: It is probably that more closely watched of earnings in general. Forget about this technology, because Apple has become a key economic barometer pretty much for the country and maybe the markets as a whole. Its sales and earnings sizzling in the latest quarter usually consider a slower quarter after the busy fourth quarter Christmas shopping season. But this one was just nothing less than a blowout. Overall sales at the fifty four percent higher than the year ago period, much stronger than they thought. Just to put it in some context, right now, the number of iPhones it sold sixty five percent more than last year, the number of iPads, about 70 percent more personal computers around seventy eight percent more after hours trading. The stock is jumping continue. A trend we’ve seen with the likes of Facebook and Alphabet, to a lesser extent with Microsoft to Art Hogan, National Securities Corporation, Scott Martin Kingsview Asset Management, Art to you first. What do you make of what’s happening with Apple? And more to the point, technology in general?
ART HOGAN: Right. You know Neil, one of the things we think about a lot as we sort of normalize the economy is how many of these companies really pulled forward a lot of demand because of the pandemic. We’re all working at home. We knew we need new laptops and iPads and phones, et cetera. And clearly this quarter shows that that’s not the case for Apple right now. They continue to create demand for their new products. And clearly, we’re just at the tip of the iceberg for the 5G rollout. What’s more interesting to me is that they just added 90 billion dollars to their current buyback program and that still has 30 billion left on it. So it’s a very shareholder friendly report right here. And the numbers just blew everybody away.
CAVUTO: Yeah, it’s increasing its dividend for a lot of our viewers who sort of get caught in this and want to know what does that mean? Obviously, when a company expresses enough confidence to buy its stock, that limits the available stock, lets the market go higher and all of that. But having said all of
that, Scott Martin, it is a good reflection on the American consumer, in this case, the global consumer as well, coming out of this pandemic. Not that they were hurting during it, but what do you make of that consumer’s appetite to buy, you know, items that aren’t necessarily cheap?
SCOTT MARTIN: It’s a great tailwind and some of that money, Neil, is coming for free in the mail or coming via direct deposit from your friends in Washington, D.C., makes those purchases probably a little easier now. Art made the point. And you did as well. I mean, we’re in the midst of the early innings, really, of a five G iPhone upgrade cycle. So that’s really, I think, what it’s showing up in this quarterly report. You know what else is interesting, though? That could be just pursuant to maybe more of that consumer demand that’s out there, Neal, is the services part of Apple, which really I mean, gosh, guys in the last few years has really taken on a life of its own. I mean, you’re talking about Apple, iCloud. You’re talking about the App Store. You’re talking about Apple Music and Apple Arcade, which, yes, I play at home with my kids. Those things are the high margin services products that the company has, Neil, and those are firing on all cylinders to. So this company, Soup to Nuts, is really taking care of business here and the stock price is reflecting it.
CAVUTO: You know, if I could just step back from this technology, the markets in general, are you bullish with all this because the markets, which are on a tear under Donald Trump, continue to build on that under Joe Biden. And I’m just wondering how long this goes on. Are there enough doubters out there, enough issues or worries to justify it? Usually when everyone capitulates and say, oh, the hell with it, I’m just writing this bull as long as he can go. What what do you tell people?
HOGAN: Well, I’ll tell you this, I think that interestingly, this has been one of those years where earnings estimates have gone higher during the quarter. That’s only happened twice in the last 10 years. So, you know, we’re clearly seeing the beginning of what’s going to be some pretty parabolic earnings growth and obviously GDP growth as the economy normalizes. So I don’t think we’ve been able to correctly factor in what the S&P 500 can earn next year. In the middle of last summer, we thought that was going to be about one hundred seventy two dollars. Coming into this morning, it looks like one hundred eighty six. And I bet you anything it’s going to be north of one hundred and ninety dollars for the S&P 500 earnings for twenty twenty one by
the end of this reporting season. And that means if you don’t even change the multiple, you get the forty three hundred in the S&P 500. So yeah, I think there’s there’s more tailwinds and headwinds right now. Now the stocks need to take a pause at some juncture. And I think we’ve had some rotational corrections technology sold off a month ago. It’s back in favor now. Cyclicals are selling off right now. They were very much in favor for the entirety of the first quarter. The Russell 2000 had an eight percent draw down its back in favor again. So I think what we’re seeing is rotational corrections, which makes it a very healthy market.
CAVUTO: You know, Scott, if I could throw out a very unhealthy development in Washington, maybe healthy as a market, see a stimulus, a stimulus, right. But trillions of dollars in spending, I notice Wall Street doesn’t have any discretion as to whether it’s coming through more spending or tax cuts, but they seem to like it just fine. If they’re worried about it, they have a funny way of showing it. What do you think?
MARTIN: Yeah, wild parties are fun until your parents come home. I think I know that from experience, maybe have a flashback or two, but that is a reality.
CAVUTO: I never went to parties I was very busy at home studying and as was Art. So we cannot relate to that.
MARTIN: I was the one who had the parties that nobody would come over to Neil. Yeah. So maybe we are in that same camp. But the reality is, Neil, DC, though, is addicted to this, just like students are departing in the sense of like they keep spending, they keep putting out these numbers, they keep keeping the consumer on the government dole until they can’t stop anymore. And so at some point, this does have to be paid for. I think we’re starting to see indications of that. Capital gains taxes, corporate tax rate hikes, income tax rate hikes, that stuff will definitely show up sooner than later. And that’s when I think we start to have some market volatility here.
CAVUTO: Art, a new investor, comes to you today and says, Art, I want it on this market, I’ve never been in on it, but I hear all these good things. I caught you and Scott last night and I want to I want in. What do you tell them?
HOGAN: You tell a new investor that you want to have a barbell approach in twenty twenty one, where on one end of that barbell you’re going to have thematic fast growth companies. 5G is one of those themes. Cloud computing and cloud security are two of those other themes. Apple falls into that category of 5G on the other end of that barbell. I want you to have exposure to economically sensitive cyclicals and we’re going to look at your portfolio and keep that barbell level every two months so that if technology is running ahead, we’re going to take profits and put it in the cyclicals. If you did that in 2020, you outperformed the S&P 500 by four hundred and seventy five basis points. And the same thing is holding true through the first quarter of this year. So I think that’s a new investor has to look at this as balanced and diversified.
CAVUTO: Yeah, it’s your perspective for me, I know for young people, it’s it’s longer term can be a ways know people like Scott, but for me, long term is lunch tomorrow. So we’ll have to sort that out. But, Art Scott, thank you both very, very much.
Click here for the full commentary.
PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 4.28.21
One of the beneficiaries of the lockdowns and social distancing measures of the past year has no doubt been the housing market. It is well known that many flocked to the suburbs, moved to warmer climates and traded up their homes during the early stages of the pandemic. As a result, home prices have continued to reach new all-time highs that have eclipsed the mid-2000’s housing boom. As the economy and world return to pre-pandemic levels, how does this affect everyday investors and what impact might it have on broader markets?
Naturally, housing is a basic human need and has a profound impact on our everyday lives. From an investment and economic perspective, the housing market is both itself an investable asset class as well as a macro-economic indicator of financial health. Recent data paint three important pictures from these perspectives.
First, the housing market can tell us about the economic health of consumers since homes are the largest asset for many households and mortgage payments are usually the largest expense. This creates a “wealth effect” associated with the value of one’s home – the higher and more stable that value is, the higher their perceived net worth and the more willing consumers are to spend. Although real estate is illiquid, even the perception of changing asset values may be enough to spark changes in behavior. Thus, rising housing prices have likely contributed to consumer and investor confidence – both of which have jumped in recent weeks. Combined with higher savings rates, the average consumer is likely to be a strong position.
On the other hand, fast-rising home prices make it more challenging for new homebuyers. Fortunately, interest rates are still low by historical standards even after climbing in the first quarter. The average 30-year fixed mortgage rate is still around 3%, well below the 4% average since 2008 and 6% longer-run average. While low rates have contributed to higher home prices, they also help to offset them and increase affordability.
HOME PRICES ARE CLIMBING TO NEW HISTORIC HIGHS
1. The S&P/Case-Shiller index of housing prices has climbed to new peaks – both nationwide and across the top 20 cities.
2. This began to occur soon after the COVID-19 lockdowns as many sought more personal living space. Since then, the trend has only accelerated alongside the economic recovery.
Second, the housing market itself continues to face high demand and significant supply constraints, even with COVID-19 restrictions subsiding. The supply of homes available for sale, measured in terms of the number of months needed to sell, is near historic lows of 3.6 months. As a result, both building permits and housing starts have zoomed past historic averages. That this surge has been concentrated in single-family homes is consistent with the anecdotal experience of those seeking more, and better, living space.
Rising housing demand also puts pressure on other parts of the market. Lumber prices, for instance, are at historic records, rising more than 5x from the April 2020 low. Other materials including granite, bricks, concrete blocks, paint and more have all increased. While there are micro-economic factors in each of these markets, some economists expect it could take years for some of these prices to normalize.
Finally, rising home prices have contributed to the real estate sector of the stock market gaining 16% this year after declining in 2020. While only a portion of this index is related to residential real estate, the re-opening of the economy has pushed many parts of the sector higher. Continued supply/demand pressures, low interest rates, the economic recovery and other factors could continue to move in the favor of some of these industries.
THE INVENTORY OF HOMES IS NEAR HISTORIC LOWS
All-time record home prices are due to limited supply and increased demand. At the moment, the months’ supply of homes is only 3.6 months – near historic lows. This has led to a surge in building permits and housing starts across the country.
THE PRICES OF LUMBER AND OTHER COMMODITIES HAVE SURGED
New homebuilding activity has also resulted in historic records for the prices of lumber and other housing materials. This has surpassed even the recoveries in other economically sensitive commodities such as oil and copper.
As always, this is a key reason investors should stay diversified and consider a wide variety of sectors and asset classes. The housing market has been a positive sign for the macro economy, individual homeowners and the broader stock market. Below are three charts that highlight recent data around this important sector. The housing market has been strong during this recovery which is a positive sign for the economic rebound. Investors ought to remain diversified across sectors as the cycle evolves.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021-190)
Kingsview CIO Scott Martin talks about bullishness sentiment, historical corrections in the market, and what factor might mitigate pullbacks.
Program: Making Money with Charles Payne
Station: Fox Business News
CHARLES PAYNE: Meanwhile, there is other stuff happening, tangible stuff, in fact, that should inform and really, really help investors and I think encourage investors. Joining me now to discuss all of these things Kingsview Wealth Management CIO Scott Martin. TJM Institutional Service Director Jim Iuirio, and Advisors Capital Managing partner Joanne Feeney. Jim, let me start with you. If the administration was looking to see how Wall Street would handle the world’s highest capital gains tax. I think they got their answer. You think they’ll listen?
JIM IUIRIO: Well, first of all, they could have just asked us ahead of time what we are going to think about a forty-three percent cap on the gains. They didn’t have to actually plug that out. Remember, they are politicians. So if there were not a forty three percent capital gains rate, they know that’s absurd. They probably have in their sights realistically at 30 percent. And then they want to make us think that we negotiated back. So we feel like we got some sort of deal. But let’s keep it in perspective. 30 percent is awful. It’s toxic and destructive policy, and it’s destructive for the middle class. Those people make over a million dollars that they’re trying to target. Those are the people that employed the middle class. So the question becomes, are they willing to signal that they’re anti wealth or against the wealthy at the risk of damaging the middle class and damaging the economy? And I think the answer to that is yes, I think they are willing to do that. I think it’s terrible policy. And I think that if they really get far in pushing it, that Wall Street will have a bit of a tantrum. But in the end, I think it’ll be OK for stocks.
CHARLES PAYNE: Yeah, you know, to that point, it feels like this administration is really worried about their strategy is to win the polls and message things and public relations things and get the media to win the polls and then try to force the action. You know, Joanne, of course, there was also even coming into yesterday, it felt like different things bother in this market. I mean, I’m looking at the internals every day at the close. They’ve been unimpressive, even on Update’s volume drying up. Even today, we’re having a really strong day, you know, with respect to the bounce back economic data. And yet volume is extremely low again. Where is this trepidation coming from?
JOANNE FEENEY: Well, you know, Charles, I think a lot of folks are a little bit fearful, valuations in many stocks are quite high and a lot of investors have pretty concentrated portfolios and they’re trying to figure out what to do potentially with rising rates on the horizon and maybe that capital gains tax. That’s why we think right now index investing can be particularly fraught. You know we invest in individual stocks for our clients, either for appreciation or looking for income. And we still think you can find good values here, but you just have to be a lot more selective because of those real significant concerns over some of the headwinds that will come into play once we get through this Goldilocks period of fast growth, lots of fiscal spending.
CHARLES PAYNE: I’m going to come back to you about those individual ideas, because I’m all about individual ideas to, you know, Scott now, despite all of this angst, right, there are two things that have remained constant. The market is higher. It’s, in fact, having a pretty good year So far. Individual investors remain very bullish that AAAI number is a monster. It won’t go down. But I thought that that was supposed to be negative for the markets. What’s going on here?
SCOTT MARTIN: Well, it could eventually be negative, Charles. I mean, yes, you’re right. The bullish bullishness sentiment, easy for me to say is, you know, that’s that’s a concern. And I think the funny part, as you mentioned, just with behavioral finance, I mean, you look back to some of these big corrections, whether it was, you know, last March, the two thousand fourteen, fifteen sixteen area, the crash of 08, of course, and then other ones, when the sentiment gets really low is actually the time you want to buy, when things get bullishness at these heights, when it gets really sanguine. Those are the times you should actually be somewhat careful. So I agree with you. I think that will eventually happen again because it has proved itself out over history. But it can the market can stay bullish and the market can keep going up until that last investor is in. That’s when things will turn over.
PAYNE: You know, Joanne, I want to come back to you because I’m thinking about this individual stock thing and earnings season, we’re two weeks and really the only word I can use is amazing revenues, earnings, crushing it much better than than we thought they would be on January 1st and April 1st. But for the most part, a lot of these stocks are popping in the aftermarket, then selling off. So how do you find I mean, someone who zeroes in on this, it certainly must inform you, particularly the ones with these amazing numbers and for whatever reason, they’re selling off how should our viewers deal with that.
FEENEY: Yeah, you know, it should be expected to some extent, expectations were really high coming into this earning season, right? We knew these companies were getting back to where profits were rising. So in some sense, expectations were above the official numbers….
PAYNE: So let me jump in – let me jump in. Would you would you sell then, like a Whirlpool? Two days ago after the closed Whirlpool go straight up yesterday, it got hammered. I didn’t see it today. But if I’m holding Whirlpool, what message do I take the earnings in the initial pop or do I sell with the crowd?
FEENEY: Now, you look at the fundamentals, Whirlpool is a stock we’ve owned for a long time, we really like it here. The temporary sell off is some folks may be taking some profits, but you got to look at the fundamentals. And the outlook for Whirlpool is really strong because look at the housing market, right? Housing market is on fire. People are going to be buying new appliances. And that’s not the only place one can look for these good opportunities. You know, auto is doing very well. Even with the slowdown in production company like Texas Instruments or NXPI, really gives investors opportunities, even if there’s a sell off at earnings.
PAYNE: Jim, your thoughts on the earning season so far? What have you learned? What do you like or dislike?
IUIRIO: The one thing and Joanne mentioned that you mentioned it too the one thing that makes me a little bit more cautious is the fact that some acceptable earnings have been met with some selling. But realistically, for me, nothing matters as much as big tech earnings season, which is next week. So to me, I’m going to be looking at that. This was three weeks ago and I think the market was anticipating that interest rates were going to go much higher. I think that we’re going to scrutinize those tech earnings more based on those discounted cash flow models that tech stocks, you know, we presuppose such high earnings in the future now that we think that rates are going to be stable. And thank you for bad policy for stabling at stabilizing rates yesterday. Now, I think some of those tech earnings will be more accepted. So I’m actually looking and I think the Nasdaq is going to break through fourteen thousand in the next couple of days, particularly after those earnings. And I’m looking to get long some of the longer some of those names afterwards. But to me, earnings season is tech, earnings is 60 percent, bank earnings is 20 percent. And the rest of it is just bits and pieces.
PAYNE: I got you. Hey, let’s talk about some other catalysts for a potential rally, Scott buybacks, corporations came in sitting a record amount of money. A lot of them are telling us they’re going to put it to work, buy back their own stock. What does it mean for the market? And are there any names that may have swayed you because of this?
MARTIN: Well, I think Jim talked about some of the financials, we’ve seen it in some other areas where you’ve had a lot of cash, like you mentioned, Charles, on the balance sheets. I mean, don’t forget too – it could be buybacks, maybe some dividend increases. I mean, you’re right. Cash was not only king, but cash was also all the gestures and all the servants and everything in cash was everywhere for a while. And it’s still kind of is. I mean, so we have like this ability for these companies now to utilize that cash to issue debt at low interest rates to do so. And I think that’s going to be the continuing driver that will mitigate some of the pullbacks that we’ve talked about in the segment so far when those buybacks kick in, when maybe dividend increases come down the line. Because don’t forget, guys, as companies are out there and having, you know, let’s say back in the day, favorable dividend rates maybe at two percent. But is that tenure creeps up closer to two percent. Maybe companies start raising their dividends in anticipation of something better down the line for their own future. So therefore, health care companies and things like that might actually start raising dividends.
PAYNE: All right, and Joanne, let me ask you real quick about the reopening trade, is it back on and what do you like?
FEENEY: Yeah, I think we’re going to continue to see that play out over the year, the reopening trade is good for energy stocks. We like a couple of banks, you know, to the point of seeing increased buybacks and increased dividends. You know, we think Citigroup is in that position. MetLife is in that position. JP Morgan, these are stocks we’ve held for clients for a long time. And we think there’s definitely more room to run there. But you’ve also got like a TJ Max, for example, that really has underperformed, but really is going to benefit from the reopening as folks go back into the brick and mortar shops, Constellation brands, Casey General Stores, people getting back out on the road, back out to bars. So a lot of opportunity out there to play this rotation.
PAYNE: Yeah, well, we already saw it in that last retail sales report, which probably was just the tip of the iceberg. They call it revenge buying. We’ll see. Scott, Jim. Joanne, thank you all very much. Have a great weekend. Fantastic stuff.
Kingsview CIO Scott Martin discusses alternative energy, how the free market has advanced technology, and the growth of economic demands coming out of the pandemic.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: If you could stay there, my friend, I want to get your fine brain in the mix of this, we’ve got Courtney Dominguez here of Payne Capital, Senior Wealth Adviser, and Scott Martin Kingsview Asset Management CIO, Fox News Contributor. Courtney, what do you think of what Phil was nicely outlining here? It’s a move away from traditional gas powered vehicles that’s been pushed even by the automakers themselves, many of whom hope to have all electric line ups in the next few years. But it’s quite another issue for governors to sort of push the administration into mandating that. Where do you think this is going?
COURTNEY DOMINGUEZ: Yeah, I think you have mentioned this earlier, NeIl, which I do agree with, we’re going to have to see where the demand goes. And I do think especially for younger generations, really are pushing more toward clean energy sources. So I think long term, I don’t think that’s a trend that’s going to go away by any means. Short term, the infrastructure is just not there yet. We we really just don’t have the means to completely rely on clean energy. So when you’re looking at investments in markets, I don’t think you’re more traditional energy sources are going away here anytime soon. But long term down the line, I do think it’s a trend that we want to continue and maybe start to get a piece of. What’s kind of interesting, actually, is a lot of your biggest a lot of your biggest investors in some of those clean energy are your more traditional energy sources, because they do know that that’s the way the future. So it’s definitely something to be watching. But I agree it’s probably a longer term trend here.
CAVUTO: You know, without playing the politics, it’s so easy to dip into on this, Scott, I’m fair and balanced on energy. I’m all in on everything and wind, solar, you name it. If that is the future, don’t favor one over the other or isolate one. Just as we’ve gotten our energy independence. Now, there are a lot of other factors at play. I grant you, the appeal of electric is obviously there. If
the major auto companies are making this switch from Volvo to Ford, GM, Audi and Mercedes and on and on, and they’re improving their mileage dramatically, I believe a Mercedes offering now gets over five hundred miles on a single charge. So it’s changed the math and the dynamics. I get it, but I don’t get it at the expense of traditional energy in the time being. Let the markets decide that. That’s all I’m saying. What do you think?
SCOTT MARTIN: And. Well, Neil. And they are. And that’s why I don’t understand the government’s move to hasten this approach, to force everybody to do this. I mean, this just goes down many lines of the government taking away civil liberties and telling us what we can do and when and how. And as Phil said, and as Courtney said, the markets will take care of this and it already is, whether that’s a younger generation thing or not. And frankly, too, I mean, even to date, I mean, if you read back some of the old periodicals or some of the old scares that we had out there and say, the 80s and 90s, yes, I was actually alive then. And reading them, believe it or not, read at a young age, granted. But like we were supposed to run out of oil by now. We were going to run out of water. And technology has advanced and such in those areas where even the the dirty old, dirtier fossil fuel that is out there are better burned these days, better utilize these days because of technology, because the free market took care of that, not the government.
CAVUTO: Well said, but I’m a little older than you, maybe two or three years Scott, I can’t remember when we were transitioning from horses and I thought, no way that would that would go well and fool me twice. So Phil let me come back to you on where this goes. If if you’re Vladimir Putin and you’re the premier member of this OPEC plus club and you’re trying to push gas prices up, push oil prices up, and this has got to be a welcome development, right. Because it would potentially cut down the supply and drive up the demand. So how do you think he feels about all this?
PHIL FLYNN: Yeah, I think he’s secretly smiling, you know, because every time the government in the United States, you know, makes a move like this, it makes us more dependent on Russia, you know, and foreign oil. And if you look at, you know, what we have seen under the last couple of years since we’re rebounding back on the demand from the covid crisis, the thing that we’re finding is that we’re becoming more and more dependent on foreign
oil. And listen, you know, I understand these aspirational goals that everybody drive an electric car, you know, but you have to take it to the next level of how that’s going to impact. You know, have any thought about what what impact the environment’s going to feel from building millions and millions and millions of these batteries. And we even thought about, you know, the strip mining it’s going to take have we thought about how we’re going to dispose of these things when they’re no good? You know, so, you know, the market is moving in the right direction, you know, by the government trying to, I think, grandstand. What’s happening is could actually do more damage than good. So Vladimir smiling today, you know, and the U.S. automakers are scratching their heads to, you know, we’re moving in this direction. You know, why make it more difficult to make this transition happen?
CAVUTO: All right, we’ll see the backdrop for all of this, guys, as you know, far better than I is the improving economy. Some, you know, stunning economic news, the latest of which is what certainly, you know, has been happening on the housing front. Weekly mortgage demand jumping more than eight percent, obviously respond to a slight dip in interest rates after a steady climb. I’m looking at all of that, Courteney, and saying that that’s the backdrop for, know, oil prices that have been today, notwithstanding, you know, moving up through this and a whole host of other developments on the commodity front that has the likes of Procter Gamble, Kimberly-Clark talking about raising everyday items by at least June and in the case of Procter and Gamble, by at least September. So that is the backdrop for a lot of this. What do you think?
DOMINGUEZ: Yeah, really, everything you’re mentioning is all things that are going to potentially be increasing with inflation, which I definitely think is a trend that we’re likely going to see continue through this year. And really, you’re seeing kind of two camps right now where there’s a lot of people who are under the assumption that inflation is kind of a temporary event. That’s going to happen just as the economy continues to reopen. But there is another camp, and I do think it’s….
CAVUTO: You’re not worried about a real type of 70s type experience that was way before you were born. And I was old back then. So you’re not you’re not looking for that. What are you looking for?
DOMINGUEZ: I do think it would be more of a short term. That being said, I don’t think either the camp thing is just temporary and inflation’s not kicking in. But you’re right. I mean, it’s been a very long time since inflation kicked in. I think a lot of people are becoming complacent there. So I don’t I’m not really expecting something that dramatic like we necessarily saw in the 70s. But you definitely want to make sure you have inflation hedges in there and you’re seeing that in things like mortgage rates are going up, even though rates have eventually ticked up there, still really low for historical standards. You’re seeing people taking advantage of that because people are kind of assuming if rates go up, we may as well take advantage of the mortgage rates that are there right now.
CAVUTO: Good point. You know, it cuts both ways as we slowly come out of this pandemic. Obviously, economic demands grow and economy – That’s great. I get that Scott, but for a company like Netflix, it could be problematic, right? I mean, the number of streamers they’re having, I mean, you know, it was considered weak or weaker than expected at four million in this quarter. New subscribers expected to go down to one million in the next quarter. Is this going to play out with a lot of classic pandemic plays?
MARTIN: Some places, you know, the Netflix one is frankly a head scratcher, Neal. In fact, full disclosure, we bought some this morning just because those numbers were absolutely terrible, frankly, and I mean, I don’t know where some of the subs win. I mean, I know a handful of people that added Netflix subscriptions ahead of that crackdown, by the way, that they’re doing, where the sharing of passwords is going on, by the way, which I don’t participate in or condone. However, I’ve heard people do that stuff. So anyway, the reality is they sandbagged the numbers. I mean, to talk about a million subs added in the upcoming quarter or two, like that’s just a really sandbag number and a reason to probably get into the stock here because that bad news is already in the market and reflected in today’s stock price fall.
CAVUTO: All right, guys, it is where we’ll follow it all very, very closely. I want to thank you. In the meantime…
Kingsview CIO Scott Marting discusses immigration policy and the role of the U.S. in “fixing” foreign economies.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: Want to go to Phil Flynn and Scott Martin back with us to look at the impact of this on the economy. You know, if you think about it, Phil, much of this is borne of the fact that things are so bad south of the border in Mexico and points way further south and Central and South America that this is what happens. One idea that has come up is to help finance and provide money, support for those who are making the journey. What do you think of that?
PHIL FLYNN: I think it would be a good idea, but the United States can’t do it alone. I mean, the leadership in these of their own countries really have to take steps forward you know, for years the U.S. has been trying to support Mexico in some of other South American countries without a lot of success. You know, a lot of it has been poor leadership. You know, I think it’s really sad, though. I think what we’re seeing on the border isn’t just about the economy. I also think it’s because we’ve used, you know, the immigration issue, you know, and now these people have become like political pawns that are caught up in this, you know, this debate about immigration here in the United States. And it really saddens me to see what’s going on there, because I think in some cases, these people are being exploited for political purposes. And so I think we have a lot of responsibility to see what we can do to fix these other countries economically.
CAVUTO: You know, the president is being pushed, Scott Martin, to provide more funds and open up the refugees that we take into this country now capped at around, you know, sixty thousand or so, sixty five thousand and dramatically increase that. The argument is that this economy can easily absorb these numbers. And the higher they go, do you think it can do you think we can absorb a lot more people than we’re taking in right now?
SCOTT MARTIN: Well, I don’t believe so, and I think that’s where the numbers are getting scary, as you mentioned. I mean, it’s sixty thousand today or whatever number that and what is it, one hundred and a couple of months. I mean, this will keep growing. I think the problem is, though, Neil, you can’t fix these countries economically to some degree, maybe Mexico. Yes. But some of the other countries in Central and South America, much tougher endeavor. So when you think about the money that’s going to be given the fact that some of these folks still come over illegally and start working working illegally. So they’re not paying taxes, they’re taking American jobs. They’re putting pressure on some of those cities on the border anyway. So in it, in an economy that’s already struggling to recover, because all the shutdowns I mean, you’re talking about a confluence of events. It’s really not great economically. So with respect to trying to fix all these problems at once or fix it with money by throwing money at the problem, I don’t think that’s exactly the necessary or capable solution here.
CAVUTO: Guys I want to thank you both.
Click here for the full commentary.
PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 4.21.21
The past few weeks have seen one blockbuster economic report after another. From the 916,000 jobs that were added in March to retail sales jumping 9.8% month-over-month, these are some of the best economic numbers we could see in a lifetime. At the same time, much of this was anticipated due to the nature of last year’s shock and the natural recovery from the shutdown. As the stock market continues to reach new highs seemingly every week, how should investors interpret these economic numbers and stay focused on the long run?
It’s important to distinguish between a mechanical recovery from last year’s lockdowns, the effects of stimulus, and a sustainable acceleration in growth. Even if the economy were to simply return to pre-pandemic levels, economists would expect high growth numbers for a period as the world reopens. The fact that this has occurred swiftly is a nice surprise but hardly unusual. At the moment, consensus economic projections are for U.S. GDP to recover to pre-pandemic levels by the end of 2021.
MANY MEASURES OF ECONOMIC ACTIVITY ARE AT MULTI-DECADE HIGHS
1. The ISM manufacturing index has reached its highest level since the early 1980s.
2. Other measures, including the non-manufacturing index, are near historic highs as well. Across the board, there is clear evidence that economic activity is strong.
Similarly, government stimulus to the tune of trillions of dollars would reasonably be expected to boost overall spending by individual and businesses for a time. The latest jump in retail spending can be partially attributed to the timing of stimulus checks. However, without a further change in consumer and business attitudes, stimulus alone is not enough to sustain a long-term recovery.
These factors are important and their contribution to the early stages of the recovery cannot be overstated. However, the more important question today is whether there will be a change in individual and corporate expectations that causes growth to accelerate – beyond the initial bounce-back and one-off stimulus bills. As markets rise ever higher, this appears to be what some investors expect.
This would have to go beyond pent-up demand – i.e., the purchasing of goods that were delayed last year – and could be a reaction to factors such as being stuck indoors for months. For instance, a household might choose to buy a nicer car than planned, or splurge more on an international vacation. Businesses might anticipate this behavior and seek to invest in future growth today, further boosting capital expenditures, hiring and wages. Whether we call this “animal spirits,” a multiplier effect or any other term, this is what would allow the recovery to transform into sustained growth.
CONSUMER SPENDING IS AT HISTORIC LEVELS
1. Recent retail sales numbers show that consumer spending rose at the highest pace in history. It jumped 9.8% in March compared to February which constitutes a 27.7% increase from the year before.
2. While there are some “base effects” when comparing to last year, the timing of stimulus checks and the continued reopening of the economic have contributed to these strong numbers.
So far, it is unclear if this will take shape. However, the stock market appears to be pricing in this possibility. The market is not always correct, but when it is, it appears to be prescient in hindsight. This has been the case over the past year when the market began to rebound last April even as most parts of the country were locked down for several more months.
This is also the key to rising inflation expectations which the Fed has attempted to achieve for over a decade. Even with prices rebounding from last year’s lows, headline CPI rose 2.6% over the past year. This is an acceleration from recent history, and is notionally above a 2% Fed target, but is quite tame compared to periods of runaway inflation decades ago.
INFLATION HAS RISEN BUT IS STILL TAME
1. Despite these historic economic gains, last week’s data show that inflation is still relatively muted. Headline CPI rose 2.6% over the past year – higher than in recent memory but is still tame compared to historic peaks.
2. While the rate of inflation could continue to rise over the next year or two, there is no evidence yet that this will translate into runaway inflation.
Thus, the market is no longer just expecting a simple recovery but a continued acceleration in growth due to the economic reopening, government stimulus and excitement among consumers and businesses. While investors should continue to cheer positive economic news, they should also remain balanced and disciplined as the stock market continues to reach new highs. The economic recovery is strong, but this has pushed the stock market toward historic valuation levels too. Investors should stay invested and remain disciplined as the cycle evolves.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021-180)
SVP and Portfolio Manager Paul Nolte discusses his latest market outlook. He weighs in on Bitcoin, and why he’s more interested in exploring the companies that may benefit from cryptocurrencies and blockchain than Bitcoin itself.
SVP and Portfolio Manager Paul Nolte discusses how all parts of the market are attracting money, examines what parts of the market investors are ignoring, and what may occur with reopening trade. He also talks about how vaccination challenges may be contributing to an uneven reopening and slowing economic growth in parts of the country.
Kingsview CIO Scott Martin discusses the value of gold in a portfolio and names in the alternative energy space.
Program: Making Money with Charles Payne
Station: Fox Business News
CHARLES PAYNE: All right, so it’s been a monster week right here, earnings, economic data, of-course Coinbase went public. Now, amid all of these hot topics, something else was happening. And I’m asking, is it time to reconsider Gold? Well, my next guest says he’s not reconsidering it because he never left. Here with us now, Kingsview, Wealth Management CIO, Fox Business Contributor Scott Martin. Scott, you know, Gold making that little stealth rally. I looked at the chart. Look, the global double bottom breaking through some old resistance numbers. Is it finally maybe escaping the shadow of Bitcoin?
SCOTT MARTIN: I believe so, Charles, and kind of always considering gold, I am I mean, people were calling me Gold Member for years, and while that was a great compliment, it still is true, though, in the sense of I guess I could still be Gold Member to some sense, Charles, because of the value that Gold brings to your portfolio, other than things like stocks and other than things like bonds. And so you’re right. As you look at its relationship to Bitcoin, which certainly took the limelight over the last several months, the reality is I think Gold is due to come back. You look at some of the technicals on gold, whether it’s the Stochastics, the RSI, the MACD, what you’re just basically kind of short term indicators of momentum, but tell you that gold is making a turn as some of that money say the hot money that is comes out of things like Bitcoin.
CHARLES PAYNE: You know, and to your point, they both, to a degree, have the same value proposition, right? It’s all about a play against fiat currency. The thing, though, is gold has like a several century track record against this stuff. And it’s absolutely remarkable if you look at the retained purchasing power of gold. So I wouldn’t be surprised if some people discover it for the first time. And let’s look ahead to next week. Their earnings are going to pick up over 300 names reporting. Give us an idea of some of the things you’re looking at that maybe the viewers may want to be long going into the weekend.
SCOTT MARTIN: Yes, just a few names to sift through. Charles, a few hundred as in, like you said, about three hundred and change. So for us, there’s a couple of names we’ve been picking up recently that have some earnings next week. One of them that I want to talk about today is NextEra Energy in that alternative energy space, wind, solar also doing some heating and cooling improvements as well NextEra as an energy company, Charles, that I think will capitalize on kind of that EV wave, if you will, the electronic vehicle wave the more energy conscious wave that’s out there. So if you look at the chart on this one, two very strong metrics within itself as far as how it’s trading, not a terribly volatile stock either. And one that we’ve added to our portfolio is to add some stability.
CHARLES PAYNE: Scott, you may not know this, but I told people there’s one stock to buy if Joe Biden won the presidency, it was NEE, it outperformed like a beast during the Obama administration. They funneled trillions, billions of dollars into this company, got a bigger market cap than Exxon, ExxonMobil from nowhere. Hey, I got 30 seconds. Nobody talks. Nobody talks about it. The Nasdaq double top, you just mentioned technicals. If it breaks out, where does it go?
SCOTT MARTIN: It goes a lot higher, but you’re right about the technical – the technical is at least very short term, which if you’re trading at home, that’s the stuff that you need to watch. Certainly they’ve turned over again. So, I mean, if you look at stuff like the RSI, you look at stuff like the slow Stochastics, which again, are just momentum indicators. So there can be short term in nature. But the reality is a lot of those things, Charles hit some very big say, multiday highs over the course of this week. So the reality is that’s likely to come back in a little bit. And when those things pull back, that’s when you buy back in.
CHARLES PAYNE: We’ll be we’ll be looking to buy that dip for sure. Scott, thank you, my man. Have a great weekend.