‘The best is yet to come’ for markets: Heritage Capital President

Paul Schatz, Heritage Capital President, joins Yahoo Finance Live to discuss Biden’s revised spending plan, outlook on growth, and expectations for Amazon and Google.

Video Transcript

JARED BLIKRE: And we want to continue the discussion and check out the market implications with Paul Schatz, Heritage Capital president. And Paul, always great to see you here. Thanks for joining us. And you were just listening to Jessica's rundown of the new revised plan. Just wondering what you think the market implications of this, and specifically, anything new in here that the market really hasn't priced in yet?

PAUL SCHATZ: So without trying to be flip, the short answer is no. There's nothing new. Market reaction was really muted. And yesterday wasn't a wonderful day, but it was one down day off an all-time high. And a lot of this I think is-- I've been saying it for months. This is all priced in the market. They are going to make a deal for-- I can't-- it's got to be six months that we've heard Manchin was OK up to $2 trillion-ish.

So I don't think there's any shock here. And I also don't think there's anything in here that's going to either derail the bull market or really put it on steroids. I think a lot of this was as expected, has been priced in. Market will look at it, digest it for a day or day and a half as it normally does, but it's certainly on to bigger and better things.

JARED BLIKRE: Well, let's talk [INAUDIBLE] market. I know you watch market internals. I've been watching the advance decline lines on the S&P 500 in the New York Stock Exchange, basically a cumulative total counting how many stocks are participating in the rally at any given time. And that's basically confirming a lot of strength here. But we did see a hiccup in the bond market yesterday, kind of disturbed equities in the final hour of trading. I'm just wondering how you put all of this together in your current market view, Paul.

PAUL SCHATZ: So I was on with you a month ago, right around the huge 5 and 1/2% decline in the market in September. And my point was, we are strongly going to go to new highs in Q4. We've been in new highs in Q4. And I still think the best is yet to come. I said, I continue to believe my thesis is, number one, growth is going to reaccelerate. GDP for Q3 is going to be a trough. We're going to have much stronger growth in Q4 and Q1 of next year. Inflation is going to peak in the next six months.

Supply chain issues strongly moderate by early Q2 of next year. And this rising tide is going to lift most ships. It won't be the easiest rally like we had off of the bottom in March 2020. But the economically sensitive trade, whatever you want to call it, reopening, reflation, inflation, that trade is very alive, very well. And it's not over. And I don't think investors are properly positioned for that. So that's our big thesis.

Materials and industrials, banks, financials, energy, which are getting a pullback right now, to me, is a buy-in. I don't think it's at the expense of technology, Jared. I think, again, we're going to broaden out the rally, and tech may-- it won't be the only game in town. But it'll do fine.

JARED BLIKRE: Yeah, and we've seen some big action in the mega caps this week, notably from Microsoft in response to their earnings, Alphabet as well. Tesla reported a few weeks ago, but having a huge week. And then we got Amazon and Apple after the bell. And, you know, yesterday, I was looking at the action in Apple-- excuse me, Alphabet and Microsoft. There really wasn't-- I think they kind of held the mark afloat yesterday. I'm wondering what you expect from Amazon and Apple after the bell.

PAUL SCHATZ: So one of my favorite adages in the 32 years I've been doing this is, it's not so much what the news is. It's what market reaction is. And that, to me, is always the most difficult thing to predict. I'll say this. I think Apple, the news stays in a small band. I don't think there'll be any outsized earnings report on the plus or minus side. Look, the stock's had an amazing run. So if it had to run to new highs, I'd probably be a trimmer of Apple-- and we own a position in Apple, so I'd probably trim a little bit into a big run to new highs.

Amazon is a wild card. That one is-- yeah, you have a new CEO. He's going to put in-- he's going to put his-- try to put his stamp on the company. Bezos is, you know, off on the side. I think that has a better shot at a small upside surprise, I would say. And we don't Amazon as well. I would certainly not sell Amazon into a good earnings announcement. If earnings is on the disappointing side and the stock does pull back, we'll certainly look to add to it soon.

JARED BLIKRE: All right, you said you talked about some of these sectors and industries that you like. You said a rising tide is going to lift most boats, but what is it not going to lift? What do you want to stay away from right now?

PAUL SCHATZ: So think about it this way. If my thesis is the economy is going to reaccelerate and really reaccelerate, so the sectors I gave out, again, financials and banks and energy and industrial materials, those are the ones that are going. Semiconductors should go, and technology should be fine. What shouldn't go, frankly? Well, anything bond related. So things like utilities and staples and REITs, they won't keep pace. They may rise, but at a much lower level.

And I think, certainly, if my thesis proves correct, the bond market, the 10-year probably sees 192% by the end of the first quarter of 2022. So if you're a bond investor, kind of brace yourself because there's a little more hurt coming. It's not the end of the world, frankly. And people should stop with this notion that, well, if bonds soar, then tech can't go up and vice versa. It's not the case. It's only proven out over short periods of time.

So, figure out what your big picture is-- and I gave mine-- and follow it. And don't be so concerned because a short-term move-- for instance, when the dollar goes up, gold has to go down-- it only proves out in short periods of time. And investors shouldn't get wrapped up in that. But I think people are-- if you're an equity investor, I think you're in for some fun. Maybe get a short-term pullback before Thanksgiving, and then we're off to the races into the new year.

JARED BLIKRE: Paul, I'm all up for fun. And we want to have you back on March 31, 2022 to see if the [INAUDIBLE] 10-year percent after all. Paul Schatz, Heritage Capital--

PAUL SCHATZ: You got it.

JARED BLIKRE: --president, thanks for joining.