Dow Today – Stocks can rally through year end -strategist
As the Dow hits another record high, Crossmark Global Investments’ Veronica Fernandez tells Reuters’ Fred Katayama about the tailwinds that she sees driving stocks higher. She also makes the case for buying Mastercard and Visa.
FRED KATAYAMA: The Dow Jones Industrial is hitting a record high Thursday afternoon off that upbeat weekly jobless claims report with the S&P 500 just about 1% shy of its all-time high. Let’s find out how much more room there is for stocks to go further north. Let’s go to Houston, where we’re joined by Victoria Fernandez. She’s chief market strategist at Crossmark Global Advisors. Welcome back, Victoria.
VICTORIA FERNANDEZ: My pleasure to be here.
FRED KATAYAMA: Good to have you with us. Technically, it looks like the S&P 500 and the NASDAQ are neither overbought nor oversold. But technically, especially fundamentally, in your view, how much more headroom is there for the stocks to extend their rally?
VICTORIA FERNANDEZ: Fred, people talk about valuations all the time and the concern that some of these stocks, their P/E levels have really started to get higher. But you have to look at where we sit right now, at the– maybe not the very beginning, but maybe still in the middle of a reopening for our economy. And we look at earnings season. Earnings have been so strong. I think at this point, 90% of companies that have reported are beating expectations.
So we have strong earnings. We have good fundamentals. I know ISM, manufacturing, and services came down slightly for this month, but it’s off of record high levels for the month of March. And we have a consumer– you and I have talked many times about how important the consumer is. And the consumer is strong with savings rates north of 20% right now, which sets them up to continue to spend not just now with stimulus checks coming in, but in the quarters to come. So this is why we think, yes, even though there could be some headwinds from headline information about things that are happening, we have a pretty good foundation and good tailwinds to take us through the end of this year.
FRED KATAYAMA: Yeah. You always talk about consumers and McCormick stock, among others. In terms of concerns or headwinds, as you mentioned, what about inflation? Should we fear a Fed that seems not to fear inflation? Is this going to be temporary or permanent? What are you hearing, for example, on earnings calls?
VICTORIA FERNANDEZ: So on earnings calls, you’re hearing a lot of companies come out now and really talk about the supply chain issues that they’re seeing and how that’s feeding through into higher costs for them and how they’re actually planning on passing that on to the consumer. So we’ll have to see how that feeds through. We’re obviously going to have some spikes, right? We know that’s coming. The Federal Reserve has talked about the spikes that we’re going to see because of the base case that we have from a year ago because of supply chain issues.
But those should start to mitigate maybe around the middle of this year, especially as Europe starts to open up. Supply chains should start to be a little less stressed as demand starts to even out a little bit. As more and more economies are open and people are out there doing their regular things, demand may start to level off a little bit. So I tend to agree with the Federal Reserve that the majority of what we’re seeing is transitory.
The question is going to be when that baton gets passed over to the labor market and to wages. That’s where we see longer-term inflation coming from, so that’s what we need to be very careful and watch. And obviously, we have the big Labor Department numbers coming out tomorrow.
FRED KATAYAMA: And lastly, I understand you like the prospects for Mastercard. It had a great run last year, up 37% over 12 months. But the momentum seems to have [? flagged, ?] the latest underperforming the broader S&P 500, up 4% so far this year. What are you seeing in Mastercard that others aren’t?
VICTORIA FERNANDEZ: Yeah, so MasterCard and Visa— I think you can lump both of them together in this arena. When we look at the economy opening back up, as you know, we don’t like to make those pure re-opening trades that a lot of people do. We like to look out a little bit longer. And we do feel like that some of the activities and characteristics that people have adopted during COVID are not going to change.
Online ordering of items is going to continue. People are doing more and more banking and payment of items online. Even when you look at food delivery, grocery delivery, I don’t think it’s going to go 100% back to in person. I think people are going to continue to do these things online. Health care, fitness, all of these items that have really taken a move to be more online. And you pay for those services with your credit cards.
So we think that there is still quite a bit of growth over the next few years for these companies. And you even see them now talking about looking at cryptocurrencies and how they can interact with cryptocurrencies, which to us says they’re continuing to move forward, and there’s even greater opportunities going forward.
FRED KATAYAMA: All right. A lot more life ahead. Thanks a lot, Victoria. Our thanks to Victoria Fernandez of Crossmark Global Investments. I’m Fred Katayama in New York. This is Reuters.