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‘Good old-fashioned stock picking is coming back into vogue’: Strategist

In this article:
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Kevin Simpson of Capital Wealth Management joins Yahoo Finance to break down the latest earnings season and which sectors are faring the best in the face of supply chain disruptions and inflation.

Video Transcript

JARED BLIKRE: Well, we want to stick with the markets right now. We're going to bring in Kevin Simpson into the stream from Capital Wealth Management. Kevin, thank you for joining us here today. Now let's talk about these big moves and also the inflection in COVID cases. I think that's really one of the big drivers today. We're seeing bond yields off. The 10-year is down about six basis points. We're seeing that rush into the mega caps of those growth stocks again. I should note, we got five mega caps set for record closes-- NVIDIA-- I'm putting them in there, too-- Amazon, Apple, Microsoft, and Alphabet. So what do you make of today's market action?

KEVIN SIMPSON: Well, Jared, thanks for having me. It seems like nothing's changed, right? The stock market just goes straight up forever, and your big five can carry the weight. Amazing, isn't it?

JARED BLIKRE: Yeah.

KEVIN SIMPSON: Just a few weeks ago, you and I were on here talking about the start of the third quarter earnings season and trying to think, how can we match or come off the heels of the historic second quarter number? And we saw the banks come out of the gate and just do very, very well. Then the technology stocks came behind them, blew it out of the water. This week, we saw the big box retailers were waiting for. They batted cleanup, and they hit it out of the park. So, stocks seem to be performing very, very well as we're heading into year end. And to your point, seeing these major companies continuing to hit new highs is sometimes a little bit of a head scratcher.

AKIKO FUJITA: Yeah, Kevin, what's your read on the retail space right now? How are you playing it in the face of the reports we got out this week? It feels like the demand is still there. Consumers are still spending. And yet, there's questions about supply on the other side. And those big boxes names that are best positioned with the higher inventories, looks like they're going to be the winners yet again.

KEVIN SIMPSON: You're absolutely right, Akiko. I mean, if you can control the supply chain and your margins, you can do really, really well. And we saw it across the board-- Lowe's, Home Depot, Macy's, Walmart, Target. It was incredible. So we're investors in Walmart and Home Depot, full disclosure. But I mean, any one of these names could control the supply chain.

And I think the supply problems are going to abate in the first or second quarter of next year, which is a positive. Have the pricing power, which all of these companies do. And it doesn't hurt to throw in a Black Friday and a holiday season here. So the consumer has a lot of money to spend. We've been pent-up. We're going to spend it this holiday season. And we're going to spend up for it. So I'm very bullish on the retailers.

JARED BLIKRE: Well, sticking with the stocks and sectors that you like, you just did consumer discretionary. I'm looking at your notes. You also like financials and tech. And those two kind of move in opposite directions a lot of the time because we're seeing with the resumption of COVID fears, we're seeing that move back into tech, with financials taking a backseat. Is this kind of a pairs trade for you? Or what's your thinking?

KEVIN SIMPSON: Yeah, you hit the nail on the head. I mean, the financials were playing that because we think the thesis is interest rates are going to be higher certainly next year and beyond. So you have to have that in your portfolio. As far as consumer discretionary and tech, you know, it's almost like a tale of have and have nots. We're leading this segment with these major companies that are hitting new highs every day. And there's so many others that peak to trough just can't seem to get out of their own way.

So what I'm excited about is I think, you know, good old-fashioned stock picking is coming back into vogue. And the idea of looking under the hood, looking at fundamentals, making sure that companies can continue to increase earnings, because that's what will drive future stock prices, looking at that and making sure that you've got a portfolio that's well positioned moving forward. But diversification is the key. Quality's the key. And for us, as you guys all know, we love companies that pay in increased dividends.

AKIKO FUJITA: And finally, Kevin, we have been, for the last several days, sort of hanging on to see when, in fact, the White House is going to make an announcement on who the president plans to put up, to put up as nominee for the next Fed Chair. How big of a market event is this likely to be, whether it is the renomination of Jay Powell or, potentially, a nomination for Lael Brainard?

KEVIN SIMPSON: Yeah, how interesting is this? Because a month ago, I would have said it's 100%, we're going to see Powell continue to stay in this position. And as we sit here today, it's probably 50-50, Akiko. As we know, Wall Street hates change. Typically, that's-- any kind of change is not a great thing. But I think in this one unique instance, we have such highly qualified, brilliant people. These are two candidates that are going to do an amazing job, regardless of which direction we go.

So I think from the standpoint of the Fed decision, this is one decision that I don't think the stock market's going to be too concerned about. If anything, we may see the market bounce a little bit with Brainard just temporarily, considering that some people say that she's slightly more bullish than Chairman Powell. But in this case, I don't think you can make a mistake either way.

AKIKO FUJITA: OK, we'll see if we get anything today, although maybe not likely. But Kevin Simpson, Capital Wealth Management, good to have you on today. Appreciate the time.