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.
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.
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.