The semi-cap sector is going to rip throughout the balance of the year: Tematica Research CIO

Chris Versace, Tematica Research Chief Investment Officer joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Chris Versace. He's Tematica Research Chief Investment Officer. Chris, it's good to talk to you. Let's look ahead to the rest of the week here. Markets taking a bit of a pause today, but, of course, we're going to get right into the thick of earnings season.

Certainly feels like there's momentum here-- a lot of investors looking for any kind of commentary coming from these companies about how sustainable this is. What specifically are you going to be looking for?

CHRIS VERSACE: Well, I think you're absolutely right. When we look at how the market has reacted, we look at the rash of economic data that we've gotten, particularly on the domestic front, manufacturing services-- I do think that we're going to see a pretty positive March quarter earnings season. The wrinkle, though, that I think that we really want to pay attention to is going to be on input costs.

I say that not only because of what we saw recently regarding the Suez Canal, but also too, a lot of commentary about supply chains, and we've seen a growing number of companies implement price increases across chemicals, lumbers, and the like. So I think that commentary in particular will be crucial. I also think that when we hear from companies like PepsiCo and the like, what are they seeing in terms of benefits as different geographies reopen? What are they seeing that pace over the coming months-- not only in the second quarter, but really in the back half of the year?

And then, of course, we traditionally lead off with a slew of banks, and that is once again going to be the case. What are they seeing in terms of loan activity? What are they seeing on the investment banking side, given what appears to have been a record quarter, not only for M&A, but also a huge quarter for IPO activity?

ZACK GUZMAN: Yeah, we're going to be talking about that in just a second-- at least the IPO activity. But when it comes to kind of expectations on the Street for earnings and where we go from here, that, obviously, is going to be a big factor, I think, in the quarters moving ahead. Comps are going to be tough to tease out and really figure that out.

But I think to your point, forward guidance and the return of specifics on that front might be welcomed by investors. But what sectors are you seeing as maybe the highest propensity to beat those already kind of lofty expectations for the quarters ahead?

CHRIS VERSACE: Well, I think when we look at the sectors that are likely to have far easier year-over-year comparisons-- clearly, it's going to be retail. I think a lot of people, including myself, were blown away at the Buchel numbers that came out last week. We can also look at restaurants as they start to reopen on their dining front-- and by that, I mean in-room dining.

Chipotle made some very bullish comments about that last week-- that they're still seeing tremendous results on the digital front, even as they start to open in dining space as well. So I think those are two key sectors that people are going to look for. But I also heard you guys talking about the setup about what's going on in Washington on chips.

And I continue to think that even as we see robust demand for 5G data center chipsets, that the semiconductor capital equipment industry is simply going to boom. Here, we're talking companies-- Applied Materials, Lam Research, KLA-Tencor-- because not only do we have this this near-term pain point that is the automotive sector-- and of course, we're talking about some provisions in DC to address that and more-- but we've also got TSM that already announced they will spend $100 billion increasing capacity over the next three years.

Intel came out recently saying they're going to spend $20 billion to not only increase their capacity in the US, but enter the foundry market as well. So that whole semi cap sector, I think, is going to continue to rip throughout the balance of the year.

AKIKO FUJITA: Yeah, it does feel like the demand is certainly there. It's just a matter of how quickly they'll be able to ramp up production to be able to meet it. I'm wondering how you're looking at some of the growth names right now. You talked about more of the reopening trades that you're going to be looking for any signs of of pickup there. But some of these names that we've seen see huge growth over the last year, there seems to be concern about how sustainable some of that momentum is.

CHRIS VERSACE: I think that's a fair point. Given the amount of time that we have had to shift how we do things. There's likely been some structural change in what we're doing. To me, the bigger questions are, will business travel come back? That will have a pronounced impact, particularly on the airlines, but hotels as well. And if it doesn't come back as a one for one capacity, that means that other modalities are being used-- whether that's Zoom, Microsoft Teams, what have you. So I suspect that the pendulum is going to swing back, but nowhere near to what it was previously.

AKIKO FUJITA: OK, Chris Versace, good to talk to you today-- Tematica Research Chief Investment Officer.