CIO Scott Martin Interviewed on Fox Business News 7.5.21

Kingsview CIO Scott Martin discusses market expectations, employment numbers, and earnings from the S&P.

Program: Making Money with Charles Payne
Date: 7/2/2021
Station: Fox Business News
Time: 2:00PM

CHARLES PAYNE: Dow. Wow, stocks rocking in the first half of the year with investors shaking off those price spikes at the store. So are we in store for more green? Let’s get the read from our market gurus, Scott Martin, any Gábor and Melissa Aamot. Scott, what’s the second half look like?

SCOTT MARTIN: I think it’s going to be bumpy, Charles, and it’s look, it’s great how we finish the first half of the year. There was a lot of anticipation, a lot of sentiment increase and frankly, a lot of deliverance on the part of the economy. But now the expectations are high. We’re expecting a big economic reopening. We’re expecting a lot of folks to go back to work and oh, by the way, be productive. And we’re expecting earnings to deliver from the S&P. Five hundred companies. So for my money, I think it’s more of a say watch and be more careful than we were maybe in the first half of the year just because of all the expectations that are out there, of which one or two of those is likely to fall flat, in my opinion.

PAYNE: You know, Melissa, what’s really interesting is I don’t know we’ve ever seen it. Well, once that we have five quarters in a row of five percent plus gains in the market only happened one other time in nineteen fifty-four, the rest of the next year, it was up twenty five percent. Can lightning strike again?

MELISSA ARMO: Well, I will say this, I think the summer is going to be bullish. I think the next two months we’re going to continue to be on a tear and many people are expecting that we’re going to fall and it’s just not handling. So shorts are getting trapped if you’re in the market long term and just ride it out is what I say. I think the second half of the year in the fall, though, it’s a little harder to predict what’s going to happen. God forbid something happens with this Delta variant that they’re talking about with Covid or any kind of shutdown.

PAYNE: Yeah, no doubt there’s a whole lot of things that normally investors don’t have to worry about exoticness events, things on the horizon, things bubbling up, the Federal Reserve, it’s hard to navigate it. But what do you think’s going to happen?

EDDIE GHABOUR: So, look, it’s been a heck of a six months, and I guess the reason why my Twitter handle is common sensible is when you’ve had a huge run up, it never hurts to take a little bit off the table. So our playbook is we think July, we’re going to continue to see a bullish trend upwards because we’re going to refer to that as our catch-up trade, because a lot of people have missed this move. But Jackson Hole in August has our attention and we think that’s when you’re going to start to see the markets really sell off. And we could see a pretty good sized 10 to 15 percent, because I find it hard to believe that by August, the Fed is going to continue to ignore the inflationary pressure that’s going to hit. It’s going to be higher than they’re anticipating and leading the market to believe. And they’re going to have to change your language and start pivoting. So we think that’s going to be the star of the short term correction that we will see and then we will get hopefully that Santa Claus rally that we’d like to see in a bull market. So 12 months out, we like it, but that’s our playbook here in the next six months.

PAYNE: Scott, you mentioned earnings. I think earnings are going to be phenomenal, like I think this last quarter was one of the best earnings periods ever. I think the next one is going to be better. And I hear what everyone’s saying about the Fed, but they keep fooling everyone, I think Jay Powell is going to ignore the data. What happens if we keep this momentum going? Do you want to guess at where the top is going to be?

MARTIN: Well, Jay Powell has to ignore the data, Charles, because that fits his narrative and he’s right. I mean, come J-Hole or the Jackson Hole meetings, really, I mean, he’s going to have to ignore the inflationary data that’s right in front of his face. As far as the earnings go, though. I’m with you, Charles. I’m expecting great earnings as well, but so are a lot of market participants. So is the market action. So unless these earnings are getting basters, unless they blow the doors off, I think the market might be ho hum.

PAYNE: All right. Let me switch gears here, folks, because more states over the weekend dropping those extended unemployment benefits before they run out in September. Melissa, do you think it’s working? Do you see any evidence that people are now going back to the labor force?

ARMO: As far as New York City where I live, it’s not happening. Yes, I mean, it’s a big, big problem in a city like New York where you have regular people that you need to do the jobs, the delivery people, the people in the retail stores, the people in the salons. People are not back to work. It’s difficult to get a cab. Cab drivers are not even working about 15 percent of the cabs of running the elections in New York City. We have to get people back to work because people are not working. Then it takes longer to get goods, products and services. If you’re ordering furniture or anything that you want right now, even if you call in the phone you want to pay a bill, you’re on hold forever. Why? Because people aren’t working. They’re not handling the service isn’t. Their productivity is low. People got to get back to work.

PAYNE: You know, Eddie, I say this the greatest jobs market ever, and it’s being met with the greatest general strike ever. I mean, it’s amazing. What do you think? Is it going to we’re going to get any relief. People going to go back to work.

GHABOUR: I think they are looking at jobs data. Last week, we started to see an uptick in the states that changed their stance on the extra unemployment benefits. So I think as they start to roll off, you will see an uptick. But look, the labor cost is a big issue, which is another big inflationary thing that I think the Fed is missing. My 14 year old just got his first job. He’s getting paid fifteen dollars an hour to scoop ice cream. I mean, let’s go. I mean, it’s insane what the labor market is going to look like moving forward. So it’s going to be a small, slow recovery. But I think you’re starting to see that trend happen already in a short period of time.

PAYNE: Fifteen dollars a day would have been phenomenal when I was 14. Any Melissa, Scott, thank you all very much.

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Nolte Notes 6.2.21

June 1, 2021

What was Hollywood’s six-million-dollar man is now Washington’s six-billion-dollar man. Inflation impacts everything! The new budget rollout late on Friday will be the starting point for wrangling about deficits (do they matter?), spending programs (remember shovel ready?) and initiatives the current administration would like to put forward. An interesting provision is an increase in capital gains tax rates that would be retroactive to April. While many are wringing their hands about the proposals, what gets passed, should make for some interesting beach reading this summer. Back at the economy, the inflationary figures continue to run “hot” as the economy continues to lurch toward a full re-opening. Supplies channels are still not operating correctly and are unlikely to get back to normal before year end. Employment is getting better as the weekly jobless claims’ numbers fell again last week. The coming data dump for the first week of June will include the “official” jobs report that should see some improvement over last month’s disappointing figures.

The markets continue to chug along, even in the face of data that historically would have had the markets falling. Higher inflation and large job gains are generally a recipe for hiking interest rates. However, looking at the bond market, you would have to shake a few traders to get them to move. Ten-year treasury rates remain below their March peak, and “risky” high yield bonds have traded well. Investors are amazingly comfortable with a Federal Reserve that has been buying large quantities of Treasury securities every week. Along with a commitment to keep interest rates lower for longer, investors have little choice but to buy equities to get any kind of return. That has pushed valuations of the equity markets to extremely high levels, rivaling those of 1929 and 2000. What is currently missing is a reason to sell. Until the Fed begins to discuss withdrawing from their purchase program, or we begin to see investors move out of risky portions of the markets, the momentum is still on the bull’s side and stocks can get pricier still. The warm sun calls and living is easy…for now.

After a very rough first quarter, bond investors have been rewarded with “staying the course” as returns have been positive in each of the last two months. Bonds have even given stocks a run for their money since late April, providing essentially the same return without the daily swings. If there are concerns in the bond market, it is that the bond model has swung negative, indicating the direction for interest rates may be higher in the coming weeks. The model has been negative much of this year and even as rates have moderated, they really have not dropped too far from their March peaks. Commodity prices are likely to be the key driver for interest rates going forward.

The markets have been swinging back and forth between growth and value for much of the past six months, however value has been the “winner” overall, as it has been two steps forward, one step back for value stocks. These are the parts of the markets that will benefit from the continued opening of the economy as we go from virtual meetings to in person, from FaceTime to face-to-face. There have been and will be plenty of bumps along the way, however the differences in valuations between these two asset classes tends to favor value ahead of growth. Comparing technology’s performance vs. nearly every other S&P500 sector shows technology’s performance peaking in the third quarter of last year and underperforming since. Even comparing technology to international, shows a similar relationship. The rotation away from technology is hard for investors to do, as the allure of high growth keeps them from moving. However, the valuation on technology stocks in general is well ahead of their historical norms, while valuations of other sectors and asset classes remain near or below historical norms.

“Sell in May and go away” is a Wall Street adage that historically shows the markets doing poorly in the summer. However, the last few years it would be better to hold the stocks and just go away. Will this year be any different? Or will the Fed keep the good times rolling with as easy monetary policy? Stay tuned.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

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SVP Paul Nolte Interviewed on WGN Radio 5.13.21

Kingsview SVP Paul Nolte discusses the recent market dip, fears over inflation, and what’s happening with employment.

Click here to listen to the interview

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Nolte Notes 5.10.21

May 10, 2021

“Jobs, jobs everywhere and not one to be had”. With apologies to Samuel Coleridge, the jobs report on Friday was in stark contrast to the news earlier in the week of large drops in weekly jobless claims. Employment reports embedded in various survey data also indicated that payroll gains would be close to 1 million, not just a quarter of that guess. Given the huge whiff, it would not be a surprise to see stocks take a header and drop a few percentages. However, they rose nearly 1% as investors feel the monetary spigots will remain wide open, fueling further stock gains and potentially higher inflation along the way. Excuses for the miss abound, from lingering fears about covid while heading back to work, schools still in hybrid and parents needing to hang around the house while kids are home. Finally, some point to the generous unemployment programs that are keeping potential employees at home until at least September, when the benefits are set to expire. Of course, the weaker report emboldened others to push for even more benefits.

The economy is in a strange place. Manufacturing is running full out and having trouble finding “stuff” needed to make their “stuff” (hence the rising prices on various inputs like steel, copper, grains, etc.). Services are beginning to come online as restrictions ease. Yet they are having trouble finding workers and still have capacity restrictions and higher prices for their needs (like jet fuel and foodstuffs). Housing is booming as many are leaving the larger cities and heading to the ‘burbs. Lack of building (and higher lumber/copper prices) has pushed up home prices at a pace last seen in ’07. GDP growth was over 6%, yet the calls for more stimulus and keeping the Fed’s rate policy in place were heard following the report. The key question is whether the combination of the enormous stimulus package (as well as the one proposed) and higher input prices for all sorts of goods will indeed be “transitory” or much more lasting than is presently assumed. Inflation in the financial markets have been deemed a good thing, however now that it is spilling over into the “real economy”, it could pose problems for officials.

Bond investors cheered the poor employment report, as they believe the easy monetary policy will continue for longer than expected. Since hitting 1.74% in mid-March, the 10-year Treasury yield has eased to 1.60%, trading in a very narrow range. If the bond market is indeed worried about inflation, it is not yet showing up in yields. Even the spread between short and long-term bonds has contracted when it would be expected to expand as the economy heats up. Investors in low-grade corporate bonds are not worried either, as high yield rates are their closest to Treasury yields ever, meaning the margin of default risk has never been lower.

Even with the much lower-than-expected job growth last month, the “re-opening” trade in the market continues to lead the way. Small US stocks and large US value have been out in front much of the year and have regained their leadership roll over the past two weeks. The dollar has weakened as well, allowing international investments to lead their US counterparts. A concentrated portfolio of US technology stocks has been the big winner over the past decade, starting in the depths of the financial crises of 2008 and (likely) culminating with the rollout of the vaccine late last year. Investors are paying a hefty premium for growth, as the average price to earnings for growth is 30x, 50% higher than that for value stocks. Both are at historically high levels, but for those that need to always be fully invested, the near historical difference between the two would argue that investors should be buying value and selling growth. The “reversion to the mean” trade would help investors who have a diversified portfolio of large/small/international holdings perform better than the averages, which are still dominated by large growth names.

The circular argument of “why are stocks going up? Because people are buying. Why are they buying? Cause stocks are going up”, will come to an end at some point. There are not yet any hints that stocks are going to do much more than correct their torrid run this year. A large “wow” drop is not yet in the cards. Still scanning the horizon for signs though…

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

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SVP Paul Nolte Interviewed on WGN Radio 4.6.21

Kingsview SVP Paul Nolte discusses the markets, nationwide leisure activity and employment statistics, along with the concerns of economists.

Click here to listen to the interview

7:00

SVP Paul Nolte Interviewed on TD Ameritrade 3.12.21

SVP and Portfolio Manager Paul Nolte discusses futures movers, like crude oil and the major indices as well as expectations for the FOMC meeting scheduled for next week.

Click here to watch the video

2:30

Nolte Notes 3.15.21

May 15, 2021

As we “celebrate” the first anniversary of the “just two-week lockdown” to bend the curve, the economy remains a mess even though Wall Street is doing fine. Another $1.9 trillion will be doled out over the coming weeks and months to help the economy and those impacted by job loss recover. Until the economy opens fully, it will be hard to restore jobs, especially in the service sector. Market psychology has shifted from benefiting companies helped by working/staying at home to a hopeful reopening of the economy. The bond market is sniffing inflationary pressures and concerns about the time when the population is unleashed from a restricted lifestyle. Interest rates have increased significantly and this week we will hear from Fed Chair Powell regarding their position on keeping rates low for longer and when it will begin to shift. As the weather warms and vaccines find arms, the summer is expected to be “more normal”. Anything less will be a huge disappointment after the past year.

The economic damage of the past year is still very evident in the weekly jobless claims figures. The average of the past year is roughly 50% higher than the average during the financial crisis. The response from the government has been multiples more than during 2008-’09. Unlike that period, this one is completely health related and will take broader vaccination and local governments to relax restrictions on the service economy to realize a stronger recovery. The inflationary worries have not yet shown up in the “official” data, as both consumer and producer prices were as expected and are still well below the Fed’s 2% target. That will change in the coming months as commodity prices have jumped by over 20% since the end of last March. Even pulling out the usually volatile food and energy, prices are expected to soon be above that 2% level. If consumers have money to pay the higher prices, inflation can linger. The extension of various programs into fall may allow many to have money in their pockets and keep the pressure on prices. Once the economy fully recovers, wage growth will be the key driver for “durable” inflation. This dynamic will be under the microscope at the Fed meeting and the press conference that will follow. The markets are sure to react.

The bond market has been at the center of investor’s focus as longer-term bond yields have been rising in response to expectations for higher economic growth and inflation. The impact has been felt more in the treasury market and to a lesser extent the corporate bond. Corporate bond (and to a lesser extent) municipal bonds are dependent upon the health of the specific issuer. Better economic growth and higher local tax revenue will benefit these parts of the bond market. The huge issuance of treasury bonds to pay for the various pandemic programs will have a tougher time to be absorbed within the market, pushing rates up on government bonds.

After being neglected for the better part of 10 years, other parts of the markets are indeed waking up. Small stocks are up better than 20% just this year. Energy, the black gold variety, is up over 40%. While much of the attention has gone toward technology, this shift toward “everything else” has been picking up steam over the past six months. Some of this is due to expectations for better economic growth. Energy has been pushed down so far that it was impossible to find storage a year ago and you could get paid to hold it (assuming you had a few tankers in the backyard!). Today, pump prices are at or over $3/gal. Smaller stocks tend to be more domestic and do not have as much international exposure as their larger cousins. Many of these companies suffered in the early days of the pandemic and for those surviving, they are likely to thrive as growth picks up.

Interest rates and investor ebullience may be the only things to derail the markets over the long-term. Over the short-term, stocks may take a rest especially in front of the Fed meeting this week. Volatility has not subsided, but few notice it when stocks rise!

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions

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