Earnings, inflation, recession concerns: Strategist's biggest takeaways

all right we are in the thick of earnings season 170 S P 500 companies reporting results this week according to fact said in the headliners after the close Amazon and apple were watching those closely joining us now is leffertangler investment CEO and CIO Nancy tangler Nancy thanks so much for joining us so let's kind of dive right into the key Focus for today amid this earnings season I mean you've had about 80 percent of companies beating expectations you have these two kind of Bellwether companies if you will especially Apple I mean they've made up as our uh as Jared blickery just pointed out a significant portion of the rally that we've seen what does Apple and or Amazon need to deliver and pardon the pond to not upset the apple car if you will oh boy thanks Diane that was an excellent pun um so I I think that a couple of things I think they have to provide strong guidance as we move forward and there has to be um at least a maintenance of or expansion of margins uh what what we've seen this this last quarter is I find it just amazing that almost every quarter 80 percent of the companies surprise to the upside but this this quarter is particularly important because expectations were so low so what we've seen and I think this comes from the fact that managements have been waiting for the Godot recession now for almost a year and they've had time to prepare so they've laid off staff they've cut costs they've improved proved Supply chains we saw that with Starbucks in the most recent report and so what we really want to hear from these companies is that they they are going to continue to deliver on margin and they are um providing positive guidance as we look forward yeah and Nancy on that front you know we've been following a lot of these consumer-facing companies Apple's certainly one of those Amazon another one and the commentary seems to be that yes the consumer is still very resilient but they are starting to get a little more cautious and I imagine we're likely to see that reflected in apple numbers as well but how do you what's your read on what we've heard from the companies as well and to what extent that is indicative of what we're seeing in the broader macro environment so Akiko we were um advocating and we're adding we were following our own advice by adding to technology and consumer discretionary last fall um it it seemed to us that we were closer to the end than to the beginning of the rate hiking cycle no big surprise there and that uh inflation had peaked in June and was coming down and so we added risk back into our portfolio those are also the names we've been trimming in recent months because they've run so far so fast but if you step away and just look at Starbucks as a Bellwether for uh the consumer what what you'll see is that they saw increased engagement on the digital side of their business so 75 million users 4 million new from a digital 90-day kind of average user uh saw 20 million on Peak it's a peak number in China and and they raised guidance on revenues and earnings for revenues from 10 to 12 earnings from 15 to 20. so I think what we're seeing is that the consumer is still spending in areas where they find value or they find satisfaction you saw today in the ism Services numbers that prices paid were came in at 56 which is well above expansionary levels so I I think it you have to go Company by company uh you have to own the high quality companies with the proven management teams that can deliver continue to deliver earnings growth and is slowing our economic environment and that's what we've been focused on in our portfolios uh Nancy let's talk about those margins that you mentioned what do you see enough Improvement in terms of inflation at the wholesale level for companies to improve their margins yeah exactly Diane I mean what you saw in this inflation uh cycle was that PPI peaked in March uh CPI Peak last June and now we're in an environment where ppi is down to like 0.1 percent uh it has been leading inflation down and and companies have been taking advantage of that uh in in by maintaining margins so they've been able to pull back a little bit on pricing uh though some companies were still seeing pretty aggressive uh price increases but in general uh what you're seeing is that management today have been able to manage that and I also thought today's productivity numbers were pretty encouraging they're notoriously volatile so I don't want to read too much into this but productivity came in much stronger than expected unit labor costs at about a positive 1.6 percent for the last quarter we can live with that I think the FED can live with that so we'll be continuing to watch throughout the season but we're seeing um a common theme among the higher quality names that we own Nancy let's talk about the broader Market action we've seen the S P 500 edging lower for a second day this coming after the big sell-off we saw yesterday on the back of the U.S credit being downgraded by Fitch you say we're still in a bull market but where do you see the opportunity to invest right now well I think I I think Akiko that you want to own companies that can deliver earnings growth when you're in a in slowing economic environment and and I don't know if we're going to get a hard soft no Landing but I do know the trend and that is that growth is slowing uh the the government and this is I think Fitch's downgrade matters only because it drew attention to the fact that the government is sucking Capital out of the the private sector in a um I don't know an unprecedented manner that in my career of 40 years so we we will see slowing growth despite the spending that has been coming out of Washington and that's when you want to own the companies that can deliver growth so think the technology companies that the large cap names the the established names the ones that are going to benefit from the AI Tailwind the cloud Tailwind the digital tailwind and then our other theme is old economy companies that are embracing the digital Revolution so this would be a name like Starbucks but there are plenty of others in our portfolios a number of Industrials that are really turning into technology companies if you will or even a Pepsi who says we are a technology company that happens to sell snacks and Beverages and so those are the names that we want to own with strong management teams that will deliver through this period if you get a dividend and a rising dividend that's even better but this is not the time where you want to go Uber defensive and own the highest yielding names uh in in the s p you want to own dividend Growers that are out to also support their earnings growth so Nath I want to put a pin in that because I definitely want to come back to that conversation about particular stocks that you like but I just want to get your perspective especially while we have you now we talked to a lot of economists fresh off the heels of that downgrade a lot of people were surprised by it not so much but I guess it happening but the why why now what was your take or what is your take on that downgrade I I mean I think it's late uh to be honest I think they're trying to get in front of the presidential election so they're not um implementing a downgrade during a presidential election year but I I think what we've we all know is that about half of um the the U.S treasury the debt is going to come due in the next one to three years that half is at an average coupon of about 1.6 so you didn't really have to be super uh good at math to understand that that servicing is going to go up dramatically we think it's somewhere between 250 and 400 billion dollars this year and that is just simply not sustainable and so I think that's Fitch's message which is the spending needs to come in I don't know that it will um but it's drawing attention to it I think that's good but other than that I don't think it's very meaningful all right uh go ahead Akiko yeah Nancy you know we've been talking about where the economy is headed it feels like we've been having this potential recession conversation for more than a year expectations for that have started to receive while inflation uh easing is given some time of optimism for investors but there is a question of a soft Landing um where do you see that going right now so I just wrote a piece called the perfect but not necessarily soft Landing because I'm up in Tahoe and I landed a perfect face plant um on a granite slab recently and so it just was mindful of the economy if you land it just right I was able to protect the rest of my face by using my nose as an airbag according to the doctor but I think that you have to you have to as an investor understand the trend line and and what the Market's not anticipating I do think that we might have um an uptick in inflation between now and the end of the year and the Market's definitely not pricing that in I would use that as an opportunity to step in and buy uh the the higher higher quality names that will go on sale with everything else during that that correction period but that that's just a speculation I don't know that that's going to happen I I think however that what we're seeing is companies are raising earnings estimates so the heart Landing scenario in my view is out the soft Landing or no Landing are more likely and again all all I need to know as an investor is that growth is slowing and that allows me to allocate my portfolio accordingly and Nancy uh speaking of that soft Landing scenario let me just give some context to where I want to go with this so Bank of America dropped their call for a recession this year do you agree with that assessment uh and is it soft Landing in your eyes no recession pretty much Diane I'm answering the latter part of your question I think soft Landing is kind of no recession uh at least one that won't be widely felt um I I think that um I don't want to sound cynical but I think following the strategists is never a winning strategy for investors who are trying to buy low and sell high so many of these uh same strategists were extremely negative last year when you actually should have been holding on to and adding to your Equity Holdings and so I think now it's just a little bit too late too little too late uh they may be right but the Market's already reflecting that the market already discounted um at least an extension to the recession uh last fall and into the first half of this year so now we're looking forward and saying earnings estimates are on the rise in the first half of this year they're going to be much stronger next year and that's really what the Market's focused on rather than do we or don't we uh actually you know have a soft Landing or uh no recession at all

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Length: 10min 49sec (649 seconds)

Published: Sun Aug 06 2023