Companies are going to do very well heading into earnings season: Strategist
Quincy Krosby, Prudential Chief Market Strategist, joins Yahoo Finance’s Alexis Christoforous and Kristin Myers to discuss market outlook in the months ahead.
Video transcript
ALEXIS CHRISTOFOROUS: And let's stick with the markets and bring in Quincy Krosby now. She is chief market strategist at Prudential. Quincy, good to see you, as always. We have got earnings season upon us once again. You know, you blink, and boom, there it is again. We're going to hear from the big banks later in the week. I'd love to know what your expectations are as these earnings trickle in. And do you think we're going to see that rotation now back into growth in a big way? Because they're going to come out with really nice earnings numbers.
QUINCY KROSBY: Well, I think, you know, you're going to see, as we've seen even over the last month, is back and forth between growth between cyclical value. I think that what you are going to see, though, is that companies are going to do very, very well. Right now, you're looking at year over year estimates, about 24% year over year. Remember, it was really only March that we had the problem. But what you are also going to see is topline revenue growth growing, perhaps about 6%, which is extremely important. And overall for the market, it is about guidance.
If we're going to start hearing about margin compression, about companies having to pay more for-- especially industrial manufacturing companies-- pay more for their input, the question will be whether or not they're going to eat it, or they're going to send it over to the consumer. Those are all issues. And also, what we're seeing in terms of leisure and hospitality, a group that is finally coming back to life, we're seeing it in terms of the market.
We're seeing it in terms of labor, except that labor is getting much more expensive as folks in that group, lower wage earners, are actually doing better staying at home. And what we're hearing is that many of the companies within that space have to give special bonuses, raise prices. And the question is, how did they see that? And how does it affect their margins?
KRISTIN MYERS: So then, Quincy, where are you seeing opportunity right now if either you do want to make that reallocation, or you want to put some fresh money to work in the markets right now?
QUINCY KROSBY: Well, yes, and, you know, I see the consumer still doing well, whether it is the XLY, whether it is the XRT, which is the retail. The consumer, we see consumer confidence as strong as it was in 2017. That helps. We know that consumers have a strong balance sheet. And they've got money coming in from the government. Some of that will be held in their savings, but a lot of that is going to come back to life.
The other thing that we know that's in concert with consumer spending is, we're seeing the transports up. The transport surveys are very strong. That suggests that, obviously, product is moving. Americans are going to be going on vacation. So I like those groups on the consumer. It also suggests, by the way, that this cycle, the business cycle is still intact, that we're not at the end of the business cycle. We are more the middle to moving towards the end, but certainly not at the end. And then in addition, I like the industrials, the XLY. They are going to do well as the global economy begins to synchronize in the recovery as vaccines become more prevalent in Europe and also in Asia.
So you look at companies like Honeywell doing well in the Dow Jones Industrial. You also have airlines in there. And I think you're going to see the airlines pick up, too, as Americans, maybe not in business travel, but certainly in terms of leisure travel, begin to start moving even more than they have during the COVID headlines, where they saw major transportation moves by Americans traveling on planes.
ALEXIS CHRISTOFOROUS: Another thing Americans seem to be doing a lot of is buying homes. And we've been seeing that bear out in the housing data we've been getting. We know that inventory is still very tight, lots of bidding wars going on. But are you looking closely at the housing-related stocks and those sort of ancillary companies like furniture companies that could benefit from a strong housing market?
QUINCY KROSBY: Absolutely, home improvement, too. All of those are important, and not only are they important for the economy in general, but they give us a signal early on, maybe three months early on, as to whether or not higher rates, even higher costs at the gasoline stations, are putting a crimp on the consumer. Those start to pull back before you begin to realize that rates that are climbing are starting to impede consumer discretionary spending. So they're still doing well. And that's good news for the overall economy.
KRISTIN MYERS: Quincy, where do you--
ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Oh. No, go right ahead. I thought we were going. But we are still with Quincy. You go.
KRISTIN MYERS: We want to snatch another minute from you, Quincy. Retail sales for February weren't that great. What are you anticipating from those figures that come out a little bit later this week? I believe the 15th. I can barely remember what day it is anymore, thanks to the pandemic. What are you expecting, especially as you are pointing to some of those consumer trades going forward?
QUINCY KROSBY: Well, all of the data that we've seen, whether it's from the government, whether it's seen from some of the credit card companies, suggests we should have a strong retail number. If it's weak, it's going to cause, I think, questions as to the overall strength of the consumer. 2/3 of our economy, and you couple that with continuing unemployment claims, you'll see, actually, the 10-year Treasury yield actually probably pull back some. But the point is, we do think it's going to be a strong number.
ALEXIS CHRISTOFOROUS: All right, and now we're going to have to say, so long for--
QUINCY KROSBY: Thank you.
ALEXIS CHRISTOFOROUS: --now to Quincy Krosby, chief market strategist at Prudential. Thanks so much.
