U.S. markets closed
  • S&P 500

    4,122.47
    -17.59 (-0.42%)
     
  • Dow 30

    32,774.41
    -58.13 (-0.18%)
     
  • Nasdaq

    12,493.93
    -150.53 (-1.19%)
     
  • Russell 2000

    1,912.89
    -28.31 (-1.46%)
     
  • Crude Oil

    90.54
    -0.22 (-0.24%)
     
  • Gold

    1,792.40
    +5.60 (+0.31%)
     
  • Silver

    20.50
    -0.12 (-0.58%)
     
  • EUR/USD

    1.0213
    +0.0019 (+0.18%)
     
  • 10-Yr Bond

    2.7970
    +0.0320 (+1.16%)
     
  • GBP/USD

    1.2079
    -0.0002 (-0.02%)
     
  • USD/JPY

    135.0470
    +0.0740 (+0.05%)
     
  • BTC-USD

    23,177.39
    -712.45 (-2.98%)
     
  • CMC Crypto 200

    537.23
    -20.12 (-3.61%)
     
  • FTSE 100

    7,488.15
    +5.78 (+0.08%)
     
  • Nikkei 225

    27,999.96
    -249.28 (-0.88%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Earnings ‘will be much more about consumer spending,’ strategist says

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

UBS Head of Equity Derivatives Research Stuart Kaiser joins Yahoo Finance Live to discuss the expectations for earnings season, inflation, Fed tightening, the state of the economy, and the outlook for investors.

Video Transcript

- Welcome back, everyone. A mixed, but overall better than expected picture from corporate earnings this quarter, pointing to positive returns in markets. But investors might want to brace for nasty shocks, as worries about the economy and a hawkish Fed, they continue. Joining us with more, we've got Stuart Kaiser, who is the U-- UBS, excuse me, Head of Equity Derivatives Research.

Stuart, great to have you here with us this morning. First and foremost, as we laid out the picture of what this earnings season has entailed thus far and what more we should expect, what particularly are you going to be looking out for as the companies continue to signal their guidance or at least kind of put a dampener on what they're expecting in their outlook as well?

STUART KAISER: Yeah, great. Good Morning, Brad. Thanks for having me. I think so far, I would say-- excuse me-- earnings have actually been pretty solid. I wouldn't call it a great quarter. But given where expectations were, I think things are setting up pretty nicely, just in the sense that earnings have beaten and revenues have as well. And we also haven't seen terribly large cuts to the forward guidance.

In terms of the rest of the quarter, obviously we're going to transition a little bit more into the consumer space. So discussion about input cost inflation is probably going to be the key point that we take out of that part of earnings season.

If you think back to Target and Walmart, both recently and around last quarter's earnings I think really kind of sent shockwaves through the market when they talked about the pressures on that side. So it does feel like the rest of earnings season is going to be much more about consumer spending, input cost inflation, and the impact on the forward earnings outlook for those companies.

- And as we were just talking about, Stuart-- hey, it's Julie here. The consumer discretionary group was the best performing group in July in a month that was the best for the S&P 500 since November of 2020. As we get more into these consumer earnings, are investors sort of in for a rude awakening if they were all in on those names?

STUART KAISER: Honestly-- Hey, Julie. I would say hopefully not, just in the sense that target and Walmart I think have certainly put a shot across the bow here in terms of warning people what's to come. But to your point, discretionary did perform really, really well in July. And what we've seen for the last five months is the winners from one month become the losers from the next month. And that's happened five months in a row.

So as we look ahead to August, I think one really encouraging sign that we would take away is if we can start to see some follow through in terms of the stocks and the sectors that worked in July, can they continue to work in August? Or do we see investors just quickly fade those winners and move into other parts of the market?

So look, I think it's going to be a tricky part of earnings season because of input cost inflation, because of consumer spending. But hopefully, a lot of the information is already out there, and that kind of sets up a little bit more positively. And I think big picture, that's how I would describe 2Q in general, is pretty low expectations and then numbers that otherwise are not spectacular and look good relative to where expectations were set.

- Sir, what type of strategy should traders put on this month? Or what type of strategies do you have on at the firm?

STUART KAISER: We're actually relatively constructive about August. We do think there's a little bit of room to run here and markets, mostly because expectations and positioning are pretty low. We expect the inflation print in the middle of the month to be much less threatening than the one we saw last month.

So our view is equity markets could continue to move higher. We like being in NASDAQ and large cap tech, as opposed to buying small cap and more cyclical parts of the market. And the logic here is that we believe the Fed's policy stance is to really keep that inflation tail risk at bay. And the cost of doing that is to raise risks about growth.

And if that's the case, we just like being in that larger cap, higher quality, safer stock right now. And we do expect that to kind of work for the next one to three months, until the Fed can get a little bit more comfortable that the inflation genie is maybe back in the bottle.

- The Fed has said, and Fed Chair Jerome Powell particularly in his press conference last week, he had said that the implications of everything that they've set in terms of a policy perspective might not even be fully digested by the economy at this point. And so what might that look like from your perspective when it is fully digested by the economy?

STUART KAISER: Yeah, I think that's definitely true. I mean, I think the Fed view is that these rate increases don't hit the economy for 12 to 18 months. So a lot of the tightening that they've put in certainly won't be impacting the economy yet. Our view on the Fed, frankly, is they have a dual mandate. And the inflation side of that mandate was really being threatened in a significant way.

So they decided to hike early and hike aggressively to try to get that inflation tail risk under control. In our view, they've done a fairly good job of that. If you look how the market is pricing inflation expectations for the next few years, the market has largely sort of believed the Fed. As I mentioned, though, the cost is to their other mandate, which is growth.

So I think their view right now is while the economy is strong, and while the jobs market remains relatively robust, they're going to keep sort of attacking that inflation side of the mandate. In our view, the big challenge for them is going to be what if the job market starts to weaken? And then what do they do from a communications perspective in that case?

But I think for now, they're very content to remain hawkish, to reduce that inflation tail risk, and to see the growth risk is smaller than the inflation risk, and frankly, further in the future. And that just gives them a little bit more space to do what they're doing.

- Happy trading for this month. Stuart Kaiser, UBS Head of Equity Derivatives Research, always good to see you. Talk to you soon.