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Q3 earnings will be an ‘upward catalyst’ for the market: Expert

Tigress Financial Partners Chief Investment Officer Ivan Feinseth joins Yahoo Finance’s Zack Guzman to discuss the latest on the talks for a new stimulus package, and market outlook.

Video Transcript

ZACK GUZMAN: Talk to me about earnings expectations and how high the bar has now moved here and what you're going to be watching for when these companies start reporting. What are you going to be refocusing on? Which sectors seem most important to keep your eyes on?

IVAN FEINSETH: Well, I think the bar is still pretty low. I think we're going to see another quarter of a combination of not as bad as feared for some companies to much better than expected. Expectations for-- as you said, are a 20% year over year drop. Yet, a lot of companies are producing record levels of revenue and gross profit and net profits.

So I think that Q3 earnings are going to be another upward catalyst for the market. I think we're going to have a strong finish. And it's going to be driven by a combination of better than feared and better than expected quarterly results.

ZACK GUZMAN: The other thing, too, is-- and we kind of saw this back in Q2 when there were so many question marks floating around there, about how bad this recession was going to be. You know, we got more data maybe to take our attention off of those fears. But you also had Q2 earnings come out that were stronger than a lot of people expected, and that helped.

Are you kind of seeing the same thing now, as so much of the discussion, really from a macro sense, has been about stimulus and the lack thereof as Republicans and Democrats still can't agree on getting something through? What are you maybe looking at in terms of this maybe keeping investors back on the data of these companies being able to hold up here, despite all the big question marks out there?

IVAN FEINSETH: The companies that are leading the market higher, which are the tech companies and some retailers, don't need stimulus. So they're going to continue to go up, whether we get it or not. If we get it, it's that much better. If we don't, I still think you'll see strong results from the tech sector, which is a major part of the economy and the market. And that will drive the market higher.

ZACK GUZMAN: Let's talk about that big name tech company that everyone's going to be watching here with their big event tomorrow-- Apple. Shares are already up ahead of this today. As I noted, a very strong day for Apple shares. Right now, one of the biggest gainers in the S&P 500. Shares up more than 5% ahead of that event.

But a lot of people are expecting a once in a decade product launch with potentially four new 5G iPhone models coming out. Ahead of the event tomorrow, RBC raising its price target for Apple shares from $111 a share to $132, citing not just what they could see on the hardware front, but also that Fitness Plus subscription we've heard about a bit ago. So what are your expectations heading into that event? And are you expecting, it sounds like, that catalyst there in Apple to continue?

IVAN FEINSETH: Well, I believe it will be a significant catalyst. We will enter into a major upgrade supercycle, especially that a lot of people have been waiting for new iPhones to come out that are 5G enabled, that will have some of this-- it's going to have these-- phones are going to have high res screens or much more high resolution screens, better cameras, more features, especially high G-- 5G speed.

The most important thing, though, is that the average iPhone in service is over five years old. So there is a huge pent-up demand. And I think though stock tends to run up into the event, as we're seeing now, and usually, it sells off after, unfortunately, but I think that would be a buying opportunity if we get any weakness. Because I'm looking for further gains in Apple, driven by the beginning of this upgrade supercycle.

ZACK GUZMAN: Yeah, and if there were knocks on Apple, I mean, the people in the bear camp do tend to note slowing growth. And that always seems to be the biggest point made by fans, or rather, critics of Apple.

And when you look at that, I mean, there's truth to that case. But also, I guess, if there was one company out there among the FAANG names that might be more levered to the consumer itself, it does seem like a company that's selling phones north of the $1,000 mark in a recession if there are questions about how much money am I going to be making, or do I have a job? How much truth is that in terms of you weighing which tech companies here might be the best to lean on moving forward?

IVAN FEINSETH: Well, Apple's big driver, yes, the overall growth of the iPhone market is slowing, but the growth of the services market is growing significantly and is extremely profitable.

And as we saw, the announcement of the fitness application, the new fitness functionality in the Apple Watch, the Apple Watch 6, there's a lot coming and being introduced that will drive people's increasing their subscription portion of what they-- of their Apple iPhone spend. And that's going to be a big driver. That's the new growth driver.

As Apple continues to penetrate their over 1 and 1/2 billion user base with new services, Apple TV, Apple Gaming, Apple iCloud, the extended warranty, the new fitness app, there's so many things that they are offering, and the ability-- while people don't spend $1,000 for the phone, they buy it on a monthly basis in their contract, or now on the Apple card, which allows you to purchase Apple products on an installment, interest-free basis, which is also a powerful driver as well.

ZACK GUZMAN: Yeah, that fitness one still seems to be the newest one catching attention right now in the analyst community. Well, beyond that, shifting over to the other tech titan a lot of people are watching would be Amazon. Also a big driver today with shares well into the green.

You look at Prime data. That's originally slated for July, and we saw the postponement come through due to the pandemic. Now it starts at midnight Pacific time on Tuesday. Tomorrow, for a lot of people out there, this is a big time of the year. What are your expectations on that being a huge driver here for Amazon, as it's always one of those closely watched events?

IVAN FEINSETH: I'm expecting another record. I think they did over $7.9 billion last year in the Prime Day period. I think they will exceed that. And also, there's Target is having Target Deal Days starting tomorrow. Best Buy is having a promotion. So there's a lot of promotions going on.

So I think Black Friday, Cyber Monday is just in the kickoff to the holiday season. It's coming early. And this will be closely watched not only for Amazon, but to give indications of the strength of the consumer, the willingness for the consumer to spend, and what they're spending on. So not only the total amount, but things they buy are going to be also carefully watched to give indications of trends in retail products.

And I think that we are looking for a slight year over year increase in holiday sales from last year to this year, which is positive, considering the expectations were that, you know, the retail sector and the consumer were decimated, unfortunately, by the pandemic. So, any positive year over year change will continue to show the strength of the consumer and the resiliency of the economy.

So expectations are for a year over year holiday increase anywhere from 1 and 1/2% to as much as 4 and 1/2%. And that is a pretty wide range, but a positive number in this environment is extremely positive.

ZACK GUZMAN: Yeah, I'm glad you mentioned that it matters not just to Amazon, of course, but also to the overall economy. Because there are a lot of questions about what the consumer spend here heading into the holiday season might look like.

But on that front, just because it does sound like you are really hitting the point home here that tech stocks need to be a big portion of your portfolios for investors out there watching this, I mean, if it is a strong number-- and it does point to continued strength among the American consumers we're watching here-- would that maybe start to signal a rotation here into some of the cyclical names that we've seen get completely destroyed in the worst of the sell-off back in March? Are you starting to think about a rotation back over into that side?

IVAN FEINSETH: Yes, I mean, the auto stocks are doing well. Auto demand is strong. Caterpillar and Deere, you don't get any more industrial and cyclical than those two. And they are at highs, 52-week highs.

So there is a belief that we will see a recovery in the economy relatively soon, at least starting in the first quarter of next year. So the cyclical and industrial stocks are gaining ground, and money is rotating into them.