It's been a volatile week for stocks, with markets fluctuating as inflation heats up and the outlook for interest rate cuts adjusts. Will McGaugh, Investment Director at Prime Capital Investment Advisors, and Dan Skubiz, CIO and Senior Portfolio Manager at Ziegler Capital Management, join Market Domination to provide insight into the market as earnings season begins. Discuss prospects.
McGough explains that the market is currently focused on earnings growth rather than multiple expansion. He points out that the valuation multiple is in the low 20% range, and there is limited room for further expansion. McGoff stressed that the company “needs to achieve” profit growth this financial year to drive market growth.
Skubiz attributes the market weakness to uncertainty surrounding the Federal Reserve's monetary policy direction. He observed “trading has been choppy” since the strong CPI result in March, casting further doubt on the prospects for a rate cut, and said the market was “devoid of purpose at the moment”.
Both experts believe there is potential upside for small-cap stocks. Skubiz acknowledges that large-cap stocks are outperforming small-cap stocks, but he still sees “room for small caps.” McGaugh agreed, noting that small-cap stocks “look attractive from a valuation standpoint.”
For expert insights and the latest market trends, click here to watch the full episode of Market Domination.
This post was written by angel smith
video transcript
[AUDIO LOGO]
– The first quarter earnings season began this morning, with many major banks reporting their results. What should investors keep in mind in the coming weeks? And how could those reports impact your portfolio? We use Yahoo Finance's playbook to help you navigate the big picture. We're looking at ways to gate, and now Will McGough joins us. He is an investment director alongside Dan Skubiz at Prime Capital Investment Advisors. He serves as Chief Investment Officer and Senior Portfolio Manager at Ziegler Capital Management.
I would like to start with an overview of the big picture. So let's go to you first, Will. Putting on my macro hat, there was a lot of data this week. Earnings season begins today, and it's only just getting started. What do you think? Where are we?
Will McGough: Thank you for having me on board. And the current consensus earnings forecast is for earnings growth of 9% to 14%. 2023 is coming to an end after no revenue growth and multiple expansions. And the multiple is already in the low 20s and cannot grow any further unless other factors come into play. So we really need to see earnings growth through this earnings season, and we'll be looking to see if that translates into higher prices throughout the year, as we saw in the first quarter. I am.
And listen, Dan, I'd like to hear your opinion here as well. Let's think about the big picture here, Dan. Bank profits can be blamed for today's weakness. But we've cut short here. Dan, what do you think is the cause? Is it that we're rethinking the Fed's path and resetting prices, is it geopolitics? What do you think will happen in the market?
Dan Skubiz: Well, I think that's mainly because the market is expecting seven rate cuts this year. And then you get a CPI report like the one we got on Wednesday, which Powell downplayed, but it's not the best CPI report we've had before. But now there are probably two rate cuts on the table this year. Even if inflation accelerates again, nothing may happen.
And I think that's what the market is trying to address right now. And since Wednesday, we can see that trading has become unstable. Wednesday we had a big drop, a day of declines, yesterday we went up, and now we have another big day of declines. I don't think the market is purposeful right now, just trying to figure out exactly where we are going in terms of inflation.
– And Dan, let's continue to work together. Large stocks and small stocks can be divided into large stocks and small stocks. Reading your notes, it seems like you prefer small-cap stocks. It recently hit a new 52-week high, but has continued to fall this week. What do you like about small-cap stocks?
Dan Skubiz: Yes, Jared. That means small-cap managers have been suffering for a long time here. And consider that large-cap stocks have outperformed small-cap stocks for quite some time. And this he can talk about a legitimate valuation discrepancy between the two. But I think investors have largely dumped small-cap stocks from their portfolios. We believe there is still room for small-cap stocks for some time, and we think there is an opportunity for them to outperform, especially within the many trends we are seeing. I am. Small-cap stocks are dominated by the US, which reduces opportunities for capital investment in the US.
So, as we look to the future, the Russell 2000 index is still a low-quality index, with about 45 percent of the companies in the Russell 2000 not making a profit or making a profit. Therefore, we believe this is a very good time for active managers within the small-cap space as they are outperforming their benchmarks significantly and are poised to capture even more gains going forward. Masu.
– Will, please bring you back here. Do you agree that we see opportunity in small-cap stocks?
Will McGough: yeah yeah. I really like what Dan has to say. In other words, Dan is a bottom-up stock picker. He has the ability to add value in this type of market in sectors and styles like small caps. From the big picture perspective where I'm sitting, there's no doubt that in 2024, the talking points, the media, everyone will be focused on small-cap stocks. And once the liquidity starts flowing in one direction, you want to be on top of it. Its liquidity aspect.
And MagSeven looks like it's in the low $20s again, and PE S&P is about 21 small-cap stocks below it, so it looks attractive from a valuation standpoint. If the market continues to rise, they have room to run. So I think small-cap stocks make a lot of sense from an asset allocation perspective. And leveraging an active approach in small-cap stocks also makes even more sense with that allocation at this point.
