Market rallies may be a 'recovery' from 'the last six-months of being overly pessimistic': Strategist

Blanke Schein Wealth Management CIO Robert Schein and Christian Ledoux, CAPTRUST Director of Investments, sit down with Yahoo Finance Live to talk about market rallies, earnings season, and recession indicators.

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SEANA SMITH: Lots of excitement here, as you can see, on the podium. Look at that, too, as we cap off what has been a great week, a great month here for the markets. Dow closing up 316 points. S&P up just about 1%, 1 and 1/2%. The NASDAQ up nearly 2%.

The story of the day, really, the week, has been some of these larger cap tech earnings. We're seeing that reflected in the market today. Apple and Amazon among the big winners in today's action. NASDAQ having its best month that we've seen since 2020, along with the S&P.

Let's talk about whether or not this momentum can last. We have Robert Schein. He's Blanke Schein Wealth Management chief investment officer. And Christian Ledoux, he's CAPTRUST director of investments. Rob, let me start with you. We certainly have seen a rally here this week for the month of July. Do you think it can continue here for the rest of the summer?

ROBERT SCHEIN: Well, it remains to be seen. Right now, we have a big relief rally on the heels of all of the earnings. Announcements, specifically big tech, it was a sigh of relief, those haves and have nots. And obviously, we're seeing from a big tech perspective the operational excellence. There's the increase in the dollar and the FX trade this year, supply chain constraints. Consumer is in question, and energy prices are out there.

RACHELLE AKUFFO: And so, Christian, what do you make of this rally? And is there perhaps too much optimism right now?

CHRISTIAN LEDOUX: Well, I make of it as a recovery from a period of the last six months being a little bit overly pessimistic in the market. We haven't been nearly as bad as people may have been thinking it would have been earlier this year.

And then if you look another six months forward, there's a good chance things are going to be getting a lot better. Inflation showing signs of peeking out. The Fed says it's going to be data dependent. And the yield curve is telling you that they're almost done with their tightening cycle. So a lot of good news to come.

DAVE BRIGGS: Boy, Robert, it's just remarkable, isn't it? I mean, just putting the earmuffs on, given all the recession warnings, given the PCE number up 6.8%, largest in 40 years. And here, we have the NASDAQ up 8% on the week, 11% on the month. Is there still more room to run in tech?

ROBERT SCHEIN: Yeah, tech's going to see a lot more room to run until we get to the 200-day moving averages. We are in a counter trend rally, we believe. But there's still a way to make money in this market. You pick up some great quality names and some opportunities right now. And then, yeah, if you're positioned well, if you're looking at the right kinds of equities and sectors, you can make a lot of money.

But we're going to wait until we see some more evidence from earnings next week or some more earnings that we want to see. But we're also going to test the 200-day moving averages, specifically on the S&P 500. So you want to look at the 4,300 level. It's about another 5% from where we are.

SEANA SMITH: Christian, what about you? Are you putting money to work now? Where are you seeing the most opportunity?

CHRISTIAN LEDOUX: Oh, there's opportunities abound. You've got a lot of stocks that are still trading below 10 times earnings. And that is assuming that those earnings are maybe a little bit too high. But even if they're 20% or 30% too high, that's still cheap. And if things are getting better as we at CAPTRUST think is going to be happening towards the beginning of this next year, those kind of stocks could see a big rally.

RACHELLE AKUFFO: And so, Robert, for some of these, perhaps, lower priced or undervalued stocks, is there anything, though, that you're avoiding? Anything looking too good to be true right now?

CHRISTIAN LEDOUX: Yeah--

ROBERT SCHEIN: I think that-- oh, go ahead.

CHRISTIAN LEDOUX: No, sorry, sorry. That was for you.

ROBERT SCHEIN: Yeah, I think there's some--

RACHELLE AKUFFO: Robert, go ahead.

ROBERT SCHEIN: --consumer discretionary names that are still suspect. But I think you were seeing, if you look at technology, like I said before, the have and have nots. There's the companies with the P and E, the price to earnings ratio, and there's companies without the earnings specifically. So you want-- if you're looking at technology, you just don't buy the index itself.

You look into specific names that are cash cows. And they will continue to be so and execute. Like I said, operational excellence. The companies that we saw suffer year to date that were at super high valuations, you know, it's going to take a long time for them to recover. We would avoid those.

DAVE BRIGGS: Christian, you were chomping at the bit there. So go ahead and tag on.

CHRISTIAN LEDOUX: I was going to say something very similar. Yeah, you can't really go with companies that don't have the earnings right now. They're probably going to be working hard to get to earnings. But unless they can make it there, this is a very tough environment for those kind of companies.

What I was going to actually say was, you've got a lot of people already forecasting bad news in some of the earnings estimates of some of these companies. This has been one of the most telegraphed recessionary periods. Everybody thinks we're in recession now, if not in the next quarter or two. That bad news is already baked in to a large extent. So I don't see too many situations where the outlook is overly pessimistic.

SEANA SMITH: Robert, what do you think? Do you agree? Do you think earnings are appropriately priced for the potential slowdown that we could see?

ROBERT SCHEIN: Absolutely. I think the one caveat, though, remains to be seen if you look at earnings reports. Most recently, we point to Walmart. Walmart is the pulse on the consumer, especially if inflation through energy is hitting the kitchen table, kitchen table economics.

One of the pivots in the Fed language this week was saying-- from Federal Powell, saying, robust consumer to their softening in the consumer. So we would be cautiously optimistic. Hopefully, we have some escape velocity with the market here. But at the same time, it's all about the kitchen table economics with the energy weighing its way into the consumer balance sheet.

RACHELLE AKUFFO: And obviously, Christian, we have a lot of companies citing some of these macroeconomic conditions in their forward guidance. What are your expectations, then, as we head into the third quarter? Are we going to see some of those strengths perhaps show up in those September numbers?

CHRISTIAN LEDOUX: Oh, I don't think you're going to see positive news in company earnings for a while. When we say that there's going to be better news in the back half or maybe the first quarter of 2023, it's just not negative. It's not that it's going to be spectacularly positive. So you don't really have a very high bar of expectations. Now companies can start doing things to improve their own situation. So layoffs are coming, at least price increases in the industries that can bear them. These are the kind of things that good companies will do to make their estimates run a little bit higher.

DAVE BRIGGS: All right, Christian Ledoux and Robert Schein, got to leave it there. Have a great weekend, guys. Appreciate it.