CIO Scott Martin Interviewed on Fox Business News 4.28.21
Kingsview CIO Scott Martin discusses how the stimulus has affected consumer demand in technology. He also addresses capital gains tax rates, income tax rates, and market volatility.
Program: Your World with Neil Cavuto
Station: Fox News Channel
NEIL CAVUTO: It is probably that more closely watched of earnings in general. Forget about this technology, because Apple has become a key economic barometer pretty much for the country and maybe the markets as a whole. Its sales and earnings sizzling in the latest quarter usually consider a slower quarter after the busy fourth quarter Christmas shopping season. But this one was just nothing less than a blowout. Overall sales at the fifty four percent higher than the year ago period, much stronger than they thought. Just to put it in some context, right now, the number of iPhones it sold sixty five percent more than last year, the number of iPads, about 70 percent more personal computers around seventy eight percent more after hours trading. The stock is jumping continue. A trend we’ve seen with the likes of Facebook and Alphabet, to a lesser extent with Microsoft to Art Hogan, National Securities Corporation, Scott Martin Kingsview Asset Management, Art to you first. What do you make of what’s happening with Apple? And more to the point, technology in general?
ART HOGAN: Right. You know Neil, one of the things we think about a lot as we sort of normalize the economy is how many of these companies really pulled forward a lot of demand because of the pandemic. We’re all working at home. We knew we need new laptops and iPads and phones, et cetera. And clearly this quarter shows that that’s not the case for Apple right now. They continue to create demand for their new products. And clearly, we’re just at the tip of the iceberg for the 5G rollout. What’s more interesting to me is that they just added 90 billion dollars to their current buy back program and that still has 30 billion left on it. So it’s a very shareholder friendly report right here. And the numbers just blew everybody away.
CAVUTO: Yeah, it’s increasing its dividend for a lot of our viewers who sort of get caught in this and want to know what does that mean? Obviously, when a company expresses enough confidence to buy its stock, that limits the available stock, lets the market go higher and all of that. But having said all of that, Scott Martin, it is a good reflection on the American consumer, in this case, the global consumer as well, coming out of this pandemic. Not that they were hurting during it, but what do you make of that consumer’s appetite to buy, you know, items that aren’t necessarily cheap?
SCOTT MARTIN: It’s a great tailwind and some of that money, Neil, is coming for free in the mail or coming via direct deposit from your friends in Washington, D.C., makes those purchases probably a little easier now. Art made the point. And you did as well. I mean, we’re in the midst of the early innings, really, of a five G iPhone upgrade cycle. So that’s really, I think, what it’s showing up in this quarterly report. You know what else is interesting, though? That could be just pursuant to maybe more of that consumer demand that’s out there, Neal, is the services part of Apple, which really I mean, gosh, guys in the last few years has really taken on a life of its own. I mean, you’re talking about Apple, iCloud. You’re talking about the App Store. You’re talking about Apple Music and Apple Arcade, which, yes, I play at home with my kids. Those things are the high margin services products that the company has, Neil, and those are firing on all cylinders to. So this company, Soup to Nuts, is really taking care of business here and the stock price is reflecting it.
CAVUTO: You know, if I could just step back from this technology, the markets in general, are you bullish with all this because the markets, which are on a tear under Donald Trump, continue to build on that under Joe Biden. And I’m just wondering how long this goes on. Are there enough doubters out there, enough issues or worries to justify it? Usually when everyone capitulates and say, oh, the hell with it, I’m just writing this bull as long as he can go. What what do you tell people?
HOGAN: Well, I’ll tell you this, I think that interestingly, this has been one of those years where earnings estimates have gone higher during the quarter. That’s only happened twice in the last 10 years. So, you know, we’re clearly seeing the beginning of what’s going to be some pretty parabolic earnings growth and obviously GDP growth as the economy normalizes. So I don’t think we’ve been able to correctly factor in what the S&P 500 can earn next year. In the middle of last summer, we thought that was going to be about one hundred seventy two dollars. Coming into this morning, it looks like one hundred eighty six. And I bet you anything it’s going to be north of one hundred and ninety dollars for the S&P 500 earnings for twenty twenty one by the end of this reporting season. And that means if you don’t even change the multiple, you get the forty three hundred in the S&P 500. So yeah, I think there’s there’s more tailwinds and headwinds right now. Now the stocks need to take a pause at some juncture. And I think we’ve had some rotational corrections technology sold off a month ago. It’s back in favor now. Cyclicals are selling off right now. They were very much in favor for the entirety of the first quarter. The Russell 2000 had an eight percent draw down its back in favor again. So I think what we’re seeing is rotational corrections, which makes it a very healthy market.
CAVUTO: You know, Scott, if I could throw out a very unhealthy development in Washington, maybe healthy as a market, see a stimulus, a stimulus, right. But trillions of dollars in spending, I notice Wall Street doesn’t have any discretion as to whether it’s coming through more spending or tax cuts, but they seem to like it just fine. If they’re worried about it, they have a funny way of showing it. What do you think?
MARTIN: Yeah, wild parties are fun until your parents come home. I think I know that from experience, maybe have a flashback or two, but that is a reality.
CAVUTO: I never went to parties I was very busy at home studying and as was Art. So we cannot relate to that.
MARTIN: I was the one who had the parties that nobody would come over to Neil. Yeah. So maybe we are in that same camp. But the reality is, Neil, DC, though, is addicted to this, just like students are departing in the sense of like they keep spending, they keep putting out these numbers, they keep keeping the consumer on the government dole until they can’t stop anymore. And so at some point, this does have to be paid for. I think we’re starting to see indications of that. Capital gains taxes, corporate tax rate hikes, income tax rate hikes, that stuff will definitely show up sooner than later. And that’s when I think we start to have some market volatility here.
CAVUTO: Art, a new investor, comes to you today and says, Art, I want it on this market, I’ve never been in on it, but I hear all these good things. I caught you and Scott last night and I want to I want in. What do you tell them?
HOGAN: You tell a new investor that you want to have a barbell approach in twenty twenty one, where on one end of that barbell you’re going to have thematic fast growth companies. 5G is one of those themes. Cloud computing and cloud security are two of those other themes. Apple falls into that category of 5G on the other end of that barbell. I want you to have exposure to economically sensitive cyclicals and we’re going to look at your portfolio and keep that barbell level every two months so that if technology is running ahead, we’re going to take profits and put it in the cyclicals. If you did that in 2020, you outperformed the S&P 500 by four hundred and seventy five basis points. And the same thing is holding true through the first quarter of this year. So I think that’s a new investor has to look at this as balanced and diversified.
CAVUTO: Yeah, it’s your perspective for me, I know for young people, it’s it’s longer term can be a ways know people like Scott, but for me, long term is lunch tomorrow. So we’ll have to sort that out. But, Art Scott, thank you both very, very much.