CIO Scott Martin Interviewed on Fox News 5.13.22 - Making Money With Charles Payne

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Program:  Making Money with Charles Payne
Date:  5/13/2022
Station: Fox Business News
Time:  2:00PM

CHARLES PAYNE: You know, they say the bell doesn’t ring at the top or bottom in markets and individual stocks, though we do know this, individual stocks and markets can become overbought and oversold. I mean, look at this yesterday. That’s the fear and greed index. It got a lot closer to the worst possible degree of fear. We also learned individual investor bullishness declined again, and yet it remains substantially below historic levels. But I got to be honest, I kind of like what I’m seeing with the the bearishness. It’s receding, you know? Yeah. The survey is obviously considered a contrarian indicator. The lower the bull rates, typically the better. But I like that that bearishness is also beginning to ease a little bit because it means to me that investors are becoming neutral and that they may be more open minded to sort of sifting through the ashes. But it’s not just about surveys. I mean, in real life, folks, take a look at that active managed equity exposure. It’s declined below 30%. These are money managers, folks. That’s always a good sign. Meanwhile, consumer sentiment remains in a freefall. Today’s report plunging to a rate of 59.1 from 65.2. Here’s what you need to know. The Street was looking for 64. In fact, all aspects of this report are problematic, but none more so than buying conditions for durable goods. What you’re looking at is an all time low. Yeah, it’s flashing a red flag. Through it all, the market has held tough. We’re trying to finish the week on a positive note. Joining me now to discuss, David Dietze and Scott Martin. You know, earlier this week, our friend Ed Yardeni wrote a pretty good piece about people being too bearish, investors being too bearish on the market if your time horizon is a year or longer. Scott, is he right?

SCOTT MARTIN: He’s right 100%. And we’ve seen this movie before, Charles And it happens every time now. It happens to different degrees every time. It’s not always the same level of bearishness to what you pointed out in your intro there, which was awesome because that stuff that I look at to my man, but there’s overabundance of bear bearishness every time there’s too many sellers, every time there’s forecasts and telegraphing of recessions, bear markets, pullbacks, negative GDP, stock crashes that everybody seems to know about and they never happen. And so when I look at things in the marketplace, Charles, specifically even technicals like things like stochastic or things like relative strength, and those things are down in single digits or in the case of relative strength or MACD. I know these are crazy things to throw out. Technical indicators is what they are. Kids effectively when they get really negative. Guess what? And when you feel sick putting the trade in, that’s when it’s a good trade. And that’s what we’ve been doing this week.

PAYNE: David, what do you think? I mean, again, you know, this whole game of picking a bottom we know is folly. But every time you look back and you say, that was the zone, that was the area, we should have at least have begun to nibble. Is that right, that maybe the market’s become investors have become too bearish?

DAVID DIETZE: Yeah, absolutely. You know, I love the slogan stocks don’t grow to the sky and they don’t keep falling forever. And certainly we saw a lot of indicators at the start of this week which are consistent with capitulation. There were several days there may have been up to three days when 95% of the volume was on the downside. Of course, we’re up to even after today’s strong results here, seven weeks in a row down for the Dow. We haven’t seen that for over a decade. And as you point out, it was started with the retail investor, with the eye surveys getting very bearish, but now it has spread into the professional investors. And when you see that you are primed for a bounce, often see 5 to 7% bounce from these conditions.

PAYNE: What about this report this morning? You know, this this sentiment read, of course, the PPI and CPI number. Both were also disappointing. We had negative reaction to that, that the Fed didn’t you know, we didn’t get a negative reaction to this, even though the consumers two thirds of the economy. Is this the kind of negativity the Fed is actually looking for?

DIETZE: Yeah, I think so. You know, when the stocks stop going down, even amidst bad news, you suggest that a lot of that’s already been priced in. Investors have already braced for the worst case scenario. And that’s why I think we’re getting a bounce here despite some, you know, disappointing news on the CPI.

PAYNE: Let’s talk about earnings season. I know we’re almost at the tail end of it. Over 450 companies have reported, you know, I give it a, B, B plus, maybe C plus. Here’s the thing, though. Many are saying that Wall Street many people on Wall Street are saying that Wall Street estimates are too high. Therefore, the market is a lot more expensive than metrics like, say, for P e ratios, which suggests. Let me get your thoughts on that, because at the end of the day, the market, you know, earnings are the mother’s milk of stock market rallies. Are we being too optimistic about earnings going forward, Scott?

MARTIN: Yes. In a way, I think we well, let’s put it this way. I like how you set that up, Charles. Earnings earnings estimates are pretty darn optimistic. I mean, if you look at any any estimates where you look at Jp morgan Bloomberg, pick your favorite one. Justin Bieber, I’m sure, has got some estimates. The point is, is that they’re all sanguine. I mean, they’re really up. I mean, you’re talking about ten, 20% growth over the next couple of years. That’s probably a touch high in the sense of where we know things are right now and that it doesn’t mean they’re going to grow negatively or be negative or stay flat. But your point is well taken. The market is going to pay for those future earnings. So let’s just pick a number. Let’s say the earnings, say, for the S&P five in 2023. Let’s pick a good number, a fair number, $250. Let’s put a 20 multiple on that. That’s five K. Boys and girls for the S&P at fair value. If you want to put a 20 on it. The question is, Charles, I would take it from saying maybe the earnings are a little bit sanguine, a little bit high, but what’s the multiple the market is willing to put on that? 20 is not a bad multiple if rates aren’t going to the sky if inflation’s under control, if midterm elections go the way of, say, the Republicans and maybe we get some people back to work finally and kink the supply and supply chain issues. So I’m willing to take that bet at five S&P. That’s what we’re going to be based on, 250.

PAYNE: And to that point, David, you know, we almost have this conversation at the end of every earnings report. Everyone’s too optimistic. Earnings come around and 78% of the earnings be 80% of revenues beat. So it feels like we’re always beating the street anyway. I mean, is it becoming almost it doesn’t matter. We know earnings matter, but it feels like the earning calls and the earnings, unless this season it was almost always knee jerk sell offs. I mean, when do we decide it is a good earnings season?

DIETZE: Well, I think there’s two things. It has been a good earnings season, but there is a game, of course, as you point out, where companies and analysts keep expectations down so that their companies can be. And of course, that’s

PAYNE: Everybody’s sandbagging.

DIETZE:  Exactly.

PAYNE: The CEO thinks they’ll make a buck. He says $0.90. The analyst thinks they’ll make $0.90. He says $0.85. And if they make a buck ten, we’re all happy and everyone looks good.

DIETZE: So the problem has been going forward and quite frankly, with Russia, Ukraine, and you got China and you’ve got the inflation in the Fed, the the outlooks from the corporations are very, very modest and so forth. And so that’s not giving support to stocks. But again, we know it’s part of the game to sandbag it.

PAYNE: All right. So what happens now then? You just brought up the Fed. What happens between now and that next Fed meeting? Because almost all the important data is out, the jobs report, the CPI report, all the earnings are out. It’s a waiting game. What does this market do? Does it remain rangebound? Can the bias shift back to the upside?

DIETZE: Well, I think we’re going to be focused on the macro factors. I think the number one macro factor is really going to be signed for we’re past peak inflation. If we can do that, then I think a really hawkish Fed is going to be somewhat taken off the table and we’re not going to have these bond yields continuing to shoot up. So that’s the number one thing to look for. Obviously, the Fed speak highly interpreting that macro data also is going to weigh heavily.

PAYNE: So how are you looking at it, Scott? Again, you know, between now and that next Fed meeting, it’s going to seem like an eternity. I think we all know 50 basis points, even though there’s some folks out there still begging for 75. I wouldn’t mind 75. And if that’s the case, then what do you what would you be buying here under that notion?

MARTIN: So to sum it up in a word, nothing is going to happen. That’s a Seinfeld reference until that meeting, because of the fact that it’s like well, like David said, I mean, there’s not enough.

PAYNE: Scott the markets are going to open and they’ve been tremendously volatile. You mean we’re just going to kind of have these little pedestrian sessions where we’re not up or down that much?

MARTIN: Great point. Now, I should have said that. I should have clarified it basically, like we’ll be at the same levels probably, Charles, but it’s going to feel like an attorney, like you said, because we’ll have these crazy moves, five, 10% and some of these individual names like AMD, for example, when the stock may be at the same level. The key point, though, is yours. What is the Fed do in June? Because if they get closer to maybe saying they’re going to do 75 or stay at that 50 level, I still think the market can handle that. And that’s something that the market can look at constructively where get these bots, get these AI stuff out of the way, get real investors back in there, get some of those institutions back in there to pick off some value here and you’ll start to see the market levitate upward.

PAYNE: Real quick, David, are you buying anything right here?

DIETZE: Yeah, absolutely. So I’m going to highlight Applied Materials Tech, of course. As we know, Nasdaq down close to 30% coming into today. So I’m looking for those quintessential blue chips. We know we’ve had a chip shortage forever. And of course, Applied Materials makes the equipment that allows chip manufacturers to to make the chips. And so it seems to me, no matter what type of chip you’re talking about, Applied Materials.

PAYNE: And of course, earlier in the week, Taiwan Semiconductor said they’re raising their prices at least 6%. So I like that idea. David Scott, thank you both very much. Have a great weekend, guys.

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