'I continue to believe that earnings are going to outperform,': Macro Trends Advisors LLC Founding Partner
Mitch Roschelle, Founding Partner Macro Trends Advisors LLC, joined Yahoo Finance Live to break down his thoughts on what investors can expect from this upcoming earnings season.
Video transcript
ADAM SHAPIRO: Let's bring in Mitch Roschelle. He's founding partner at Macro Trends Advisors, LLC because he's very good at helping those of us who try to make heads or tails of how to invest, take some of the data and the comments we get from the Fed, and interpret how to use them. And I wanted to ask you, you say that investors, when you look at the yield on the 10-year, are sending a message to the Fed, don't raise rates. I wanted to challenge you on that because if that was the message, wouldn't we see them selling the 10-year and the yield going up dramatically?
MITCH ROSCHELLE: I think we're going to not disagree. I think we're going to realize that the problem with bond purchasers is they're competing with the Fed, who's also buying Treasury securities. Actually, I think last month, you saw that the number of purchases by the Fed of Treasury securities exceeded the new issuances of Treasury securities, meaning they're buying them in the secondary market.
So I think they are trying to send the message. But they're also facing some competition. And as the Fed buys, they can sort of control the yield a little bit. But I think you look beyond the 10-year and also look at the equity markets.
Wednesday through Friday, I think investors tried to send a message to the Fed that we don't like this talk of rate raising. Famously, at the end of 2018, I believe it was October 2, 2018, when Chairman Powell said something about their stance on accommodation, the market sold off all the way through the end of the year. So the market's pretty good at sending a message.
And I think they're trying to do it a little bit in the bond market. But they're facing some competition from the Fed themselves.
JULIA LA ROCHE: Mitch, Julia La Roche here. What is your outlook as it relates to rates in the year ahead?
MITCH ROSCHELLE: I think they're going up. I've sort of been wrong on saying that because I predicted interest rates staying low for a while in the midst of the pandemic because of accommodation. I think one of the things the Fed's going to do to prevent the economy from overheating-- I don't think they're going to make a move on rates. I think they are going to taper.
And the area which they're going to taper as potentially their $40 billion monthly purchase of mortgage-backed securities. And I think they're going to begin to taper in that area because the housing market is already overheating a bit. And I think that that's going to upset the market if it's not well-telegraphed.
So as you said in the previous segment, you have a slew of Fed members out there in the market. I think they're going to begin to start talking more and more about tapering. So that's influencing my outlook.
Having said, that I see a scenario in which rates are hundreds basis points higher by the end of the year if the economy continues to run hot and likelihood of the Fed raising rates in the short end of the curve as early as 2022. I think that's certainly going to drive rates up.
ADAM SHAPIRO: Hey, Mitch, before we even get to what you just said as a possibility, we're going to have earnings. I mean, in less than 10 days, we're going to be kicking off earnings season for Q2. What's your expectation? Because a lot of people are positioned right now with a lot of cash on the side and looking for that dip to jump back in, like the dip we saw Friday. They're jumping in today.
MITCH ROSCHELLE: I think you nailed it, Adam. Any time there's a dip that's more than just one day and people have a little bit of time to digest data-- so we had the perfect situation. People had the weekend to read "Barron's" and digest data. I think they jump back in on a Monday.
So there's a ton of cash. Just listen, if you look at a chart which compares the growth in the S&P 500 to the growth in the money supply, those two charts or those two lines or graphs, however you want to say it, are highly correlated. So if we continue to pump money into the system, we're going to have money on the sidelines. And any time there's a dip, people going to buy in.
But as it relates to earnings season, which is the core of your question, I continue to believe that earnings are going to outperform. Expectations are getting better and better managed. But if you look at the blowout first quarter we had, I think there's enough momentum to continue that, which is going to make stocks an interesting investment throughout the year.
There'll likely be a correction somewhere during the year of some sort because there always is. But right now, going into earnings season, I see tailwinds and not headwinds.
ADAM SHAPIRO: Mitch, when we're back in studio, our coffee, our green room coffee is a lot better than the stuff you get at Fox Business. So we look forward to having come into 770 when we're back in studio. All the best to you, Mitch Roschelle, founding partner of Macro Trends Advisors.
