Sonali Basak, Chief Investment Officer, iCapital breaks down the under-the-radar sectors set to soar, and the hidden risks investors are missing.
Transcript:
Caroline Woods: OK joining me now, Sonali Basak, Chief Investment Strategist at iCapital. Sonali great to have you.
Sonali Basak: Good to be here.
Caroline Woods: So Sonali, we’re heading into a big earnings week. We have Tesla, Netflix, Coca-Cola among others. We’ll also get CPI some long awaited data. What are you watching most closely. What’s going to move the market this week?
Sonali Basak: Well, there are a few things. Earnings season has held up pretty strong. So far. We have been watching to see as a labor market continues to weaken, whether that there’s a spillover effect into corporate America. Of course, we know it’s those higher income consumers that are much higher proportion of spending. But spending has held up quite well. When we looked at earnings a week ago, we looked at companies that were exposed more to the economy, companies like ally that still showed resilience. So earnings have been holding up. Let’s hope for the same this week. We’re watching for earnings into next week in particular, given how big tech might perform, because big tech has certainly held up the market and large form. You look at even today as we start the week after a week of pretty tough sentiment a week ago, this week is held up also in part by big tech. You saw an upgrade to Apple buy and sell side firm here, and you do see it reaching a record high for the first time this year. This was a name in the Magnificent Seven that did not get a boost, in the same way that a lot of its rivals in the Magnificent Seven had throughout the course of the year. So given that it’s more consumer heavy here, when you think about Apple and its ability to sell iPhones, promising signals that you’re seeing some positive trading behind the name. Now, when we look at this week, also something interesting to think about with the CPI data at the end of the week, the CPI data is coming out because Social Security needs to have it for cost of living adjustments. Now we still don’t get labor market data. And if the government is still shut down. But we will say this that not only is the September reading now difficult to parse through, the October reading might also have a lot of discrepancies, given that the reference week of last week for the survey has already come and gone. We’ve seen the government shutdown last longer than that point, so clarity around economic data will be a big theme heading well into next month. And there will be a push pull between the earnings story and the macro story as we continue to flush out what exactly is happening underneath the hood of this economy.
Caroline Woods: OK so let’s hone in on the macro side of things for just a second, because you’ve talked about it being this kind of K shaped slowdown. So uneven weakness. How weak does the economy ultimately get? And when does the K shaped slowdown show up in markets?
Sonali Basak: How weak does it get is a good question. I don’t think anyone could answer that given that the economy is at a precipice at this moment. What I will say is, when you look at the labor market writ large, there are a few things going on. We’re looking at farm payrolls to the extent that you can. Of course, at the current moment, you can’t look at them given the government shutdown. But to the extent you can look at them, you have seen what is consistent with the low fire, low hire economy. That means you’re not seeing companies really fire in mass. We’re not seeing layoffs mounting to an alarming level. We are seeing the labor supply also slow, which is keeping the unemployment rate within a range. And we’re believing now that if we continue to see job gains continue at the levels that we’re seeing them at, you can continue to see them reach a break even pace here, where the unemployment rate is relatively stable. But you do see a hiring start to taper off a bit. But again, low, higher low fire. It’s not an alarming level as of now.
With that said, we understand why investors could become more and more concerned. You looked at the most recent ADP data and you saw small and medium sized firms take the brunt of what you saw when it came to declines in the job market relative to the big firms that were still hiring. So certainly, you’re seeing that k-shaped play out when it comes to the aggregate data in many forms. But is it also playing out in earnings. Going back to what we said about the financials, you’re seeing parts of the lending economy focused on the more sensitive consumer also hold up. You’re seeing spending trends hold up.
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