Hightower's Stephanie Link: Earnings will surprise to the upside this quarter

Key Concepts:

• TGIF (Trade, Geopolitics, Inflation, Fed) - Represents easing concerns in these areas.
• Nonfarm Payroll - Measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed.
• JOLTS (Job Openings and Labor Turnover Survey) - Measures job vacancies and labor turnover.
• ISM PMI Manufacturing - Indicator of the economic health of the manufacturing sector.
• Copper Prices - Indicator of global economic growth.
• Earnings Growth - Increase in a company's profits.
• Margin Expansion - Increase in the difference between a company's revenue and costs.
• Stress Tests - Analysis to determine the ability of banks to withstand economic shocks.
• Book Value - Net asset value of a company.
• Stock Buybacks - Repurchase of outstanding shares by a company.

1. Market Optimism and TGIF Factors:

• Stephanie Link attributes the market's upward trend to the easing of concerns in several key areas, summarized as "TGIF": Trade, Geopolitics, Inflation, and the Fed.
• While trade issues remain, progress is being made. Geopolitical tensions are calming down.
• Inflation is decreasing, although it hasn't reached the Fed's target.
• The Fed is expected to start cutting rates, potentially in September or later in the fall.

2. Economic Indicators and Growth:

• The U.S. GDP is currently growing at approximately 2.5%.
• The labor market remains strong, supported by positive nonfarm payroll numbers, JOLTS data, and weekly jobless claims.
• While the ISM PMI Manufacturing is still in contraction, it is showing signs of recovery.
• Copper prices, up 25% year-to-date, indicate healthy global growth.

3. Earnings Expectations:

• Current expectations for earnings growth this quarter are around 5-6%.
• Stephanie Link anticipates double-digit earnings growth and margin expansion, suggesting a potential positive surprise.

4. Investment Strategy: Housing and Financials:

• Stephanie Link has been buying housing and financial stocks, even at higher levels, due to perceived value.
• She added to D.R. Horton, Wells Fargo, and Truist Financial last week.

5. Housing Sector:

• The housing sector is currently depressed, but expectations are low, creating potential for positive surprises.
• D.R. Horton is trading at 11.5 times earnings, which Link considers attractive.
• She believes that housing stocks will perform well when the Fed starts cutting rates.

6. Financial Sector:

• Financials are attractive due to low valuations (around 1-1.5 times book value) and stock buyback programs.
• Wells Fargo has a $40 billion buyback program, representing 15% of its market cap.
• Truist is buying back 6% of its market cap.
• Stress tests results were better than expected, allowing banks to return more capital to shareholders.

7. Notable Quotes:

• "TGIF is we're getting through trade. We still have a lot of questions, but we're getting through it. The geopolitics certainly is calming down. Inflation is coming down." - Stephanie Link, explaining the market's positive momentum.
• "I think the biggest tell about the growth in the not only in the US but around the world, is that copper prices are up 25% on the year. So that's very healthy." - Stephanie Link, highlighting the significance of copper prices as an economic indicator.
• "Wells Fargo has a $40 billion buyback. They're going to buy back 15% of their market cap. And Truist is going to buy 6% of their market cap back. So I think you want to be buying with" - Stephanie Link, emphasizing the attractiveness of financial stocks due to their buyback programs.

8. Synthesis/Conclusion:

Stephanie Link presents a bullish outlook on the market, driven by easing concerns in trade, geopolitics, inflation, and the Fed's monetary policy. Strong economic indicators, particularly in the labor market and copper prices, support this view. She anticipates positive earnings surprises and sees value in housing and financial stocks, citing low valuations and potential catalysts such as Fed rate cuts and stock buyback programs. Her investment strategy focuses on sectors with depressed expectations and opportunities for growth.