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Earnings/Stocks Gap a 'Warning Sign'—Be Cautious: Strategist

The recent pullback has investors wondering if this is a buying opportunity or a sign of worse to come for the markets. James Shelton, chief investment officer of Kanaly Trust, and David Katz, chief investment officer of Matrix Asset Advisors, shared their views.

“We think the selloff sets the stage for very good returns for the balance of the year,” Katz told CNBC.

“Stock prices are ultimately driven by earnings and this is a good earnings season.”

Katz said companies are doing well, and even though the revenue numbers are not quite as strong as hoped, he expects those figures to pick up over the next three to nine months.

“That will help earnings even more,” he said. “Stocks are selling at reasonable prices and you have good upside.”

Counterpoint: 'Warning Sign'

In the meantime, Shelton said he is concerned that while most companies are beating earnings estimates, stocks are still struggling.

“To me, that’s a warning sign and makes me cautious,” he said. “We’re seeing good valuations pop up in this correction, but we think we need to see it go a little bit further before we get too bullish about it.”

He said he expects the Federal Reserve to keep interest rates near zero throughout the year.

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Disclosures:

No immediate information was available for Katz or Shelton.

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