As many companies report better-than-expected second-quarter earnings, investors ask if the economy is finally on its way to a recovery. David Goerz, CIO of Highmark Capital, and Ken Shreve, market commentator at Investor’s Business Daily, shared their insights.
“Coming out of last year, we had a very significant credit crisis and so volumes are down significantly, but companies moved very quickly to try to preserve cash,” Goerz told CNBC.
“They tried to get away from dependence on the commercial paper market…and we see the benefits of that.”
Goerz expects non-financial earnings to be down significantly for the next two quarters through the rest of the year.
Earnings and the Markets:
- Pros Say: Recession Will End in 1-2 Quarters
- Options Love This Insurer 2 Weeks Ahead of Earnings
- Art Cashin: My Take on Goldman's S&P Call
“We understand that demand is down a lot and we expect an inflection point and it will be important to drive exports,” he said. “Consumer sentiment, business sentiment and investor sentiment are all going to be important from this point on,” he said.
Emerging markets such as China, India and Latin America are going to do better, as they didn’t have the initial credit overhang that the rest of the developed markets had, he said.
“They’re going to be more inwardly focused as they start to build their economies, as they try to compete with the rest of the world. It isn’t going to be all about exports for them,” he said.
In the meantime, Shreve said large-cap tech companies are the way to go for investors looking to gain profits.
“We’re seeing a lot of good solid technical breakouts,” said Shreve. “It started last week with really strong earnings from IBM , and you have other large-cap techs that continue to trade beautifully—Apple , Amazon.com . And so we’re interested in what Apple has to say" when it reports earnings after the bell.
Shreve summed up: "Large-cap tech looks very strong right now.”