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Investors should ‘fasten their seat belts’ this earnings season: Wall Street Alliance Group Partner

In this article:
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Aadil Zaman, Wall Street Alliance Group Partner, Yahoo Finance Live to discuss expectations for Q3 earnings season, big banks, and the economic recovery.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to stick with the markets and bring in Aadil Zaman, partner at Wall Street Alliance Group. Aadil, thanks for being with us.

Let's start with earnings. I know Wall Street is gearing up to hear from the big banks this week first. You say we should fasten our seat belts, that this is going to be a volatile earnings season. Tell us why you think that.

AADIL ZAMAN: Great to be with you, Alexis. Yes, we think investors should fasten their seat belts because this is going to be [INAUDIBLE] of a rocking earnings season. And supply-chain issues, Alexis, are going to be dominating the earnings, and some companies we are going to see are going to give us an early Halloween shock similar to the way Bed Bath & Beyond did. And then other companies are going to show us that they've figured out innovative ways to manage their supply-chain issues.

So for example, a company like Costco, which we are very constructive on, they've chartered three ships to move goods from Asia to North America. And we feel that companies like this are going to get rewarded because the American consumers are sitting on over $2 trillion in savings, which they are ready to deploy given the right opportunity. So we feel that this earnings season will definitely have some winners, and those are the areas of the market that we at Wall Street Alliance Group are allocating assets for our clients.

ALEXIS CHRISTOFOROUS: All right, let's talk about some sectors for a moment. I mentioned the banks. They're going to be reporting. They kick off earnings season every quarter. What are you expecting from the big banks, especially given the fact that the banks now know that the Fed has been pretty clear that they look to raise interest rates at some point in 2022 or '23? So that's going to be the backdrop for these banks in the coming months, these higher interest rates.

AADIL ZAMAN: Yes, I agree with you, Alexis, and we are very constructive on the bank earnings. You know, third quarter typically is the slowest quarter when it comes to the bank earnings, but we feel that the Street is going to have all eyes on future guidance. And like you mentioned, you know, it is becoming more obvious that with inflation, especially with the labor report that we saw last week with higher wages, the Federal Reserve, in our opinion, is going to have no choice but to come in next year in 2022, possibly, and raise interest rates.

So that will improve the net interest margins of these banks, and these banks are sitting on a ton of money that they can lend. I mean some estimates over $17 trillion. So with high interest rates, when they start lending money, it will be very profitable. And for that reason, we are very optimistic on the banking sector as a whole.

ALEXIS CHRISTOFOROUS: All right, got to talk tech. We continue to see that rotation out of some of the mega-cap names. Facebook took an initial hit on that whistleblower report and then seemed to find its footing. What are you doing with big tech right now and with Facebook in particular?

AADIL ZAMAN: So we feel that as far as big tech is concerned, you know, it's up for a correction, but we see opportunity in the long term. You know, it's only a matter of time before, you know, there's some breathing room, and we feel that in the long term it'll continue to do well.

As far as Facebook is concerned, I feel that we as a society are trying to figure out how to regulate and monitor social media. I recently overheard my five-year-old son tell his older brother about this awesome origami influencer that he follows on YouTube Kids. So social media is here to stay, and as a parent for me, it's not about banning social media use for my children but rather figuring out more effective ways of monitoring it.

And I feel that we've somewhat done that with movies where we have, like, a ratings system. We're in the process of figuring that out for social media, and Facebook does bear a greater responsibility. But we have to be careful here not to overregulate because Facebook will be able to handle it because of their scale, but it could be a potential barrier for entry for some of the smaller new entrants. But once this dust settles, Alexis, with the whistleblower issue, we feel that this is a fantastic business, and we are constructive on Facebook stock.

ALEXIS CHRISTOFOROUS: All right, Aadil, I want to ask your opinion on some new jobs data that we got today from the Labor Department, and it showed a record number of workers-- 4.3 million people quit their jobs in August. That's nearly 3% of the workforce. What do you think is behind that high number, and what's it going to mean for our economic recovery?

AADIL ZAMAN: Yeah, so, Alexis, the quit rate being so high is probably because people are, you know, still-- we are still very close to the enhanced unemployment benefit ending, and people have options. They're sitting on record number of savings. So we feel that, you know, with time, what's going to happen is that as these savings come down, workers will have no choice but to come back to the workforce.

However, we also feel that parallelly, employers will have no choice but to keep the wages elevated to attract workers. And because of that, we are going to be in an environment where we are going to get inflation. We are going to get wage inflation. And that brings us back to the fact that Federal Reserve will have to eventually raise interest rates to control that inflation.

So in an environment with relatively high inflation, with relatively high interest rates, the sectors in the market that we are looking at are financials, dividend-paying companies that have the ability to raise dividends faster than inflation, and the value reopening trade, Alexis, especially energy, we are very constructive on.

ALEXIS CHRISTOFOROUS: All right, we're going to have to leave it there. We'll talk energy at a later date. Aadil Zaman, partner at Wall Street Alliance Group, thanks so much.