We're in a period of very uncertain recovery, expert argues

Laton Spahr, President of SS&C ALPS Advisors, joins the Yahoo Finance Live panel to discuss the latest market action as the Nasdaq slips into negative territory.
Video transcript
AKIKO FUJITA: Well, a record number of companies have surpassed earnings estimates this season so far. Around 87% of S&P 500 companies report better than expected results, according to Refinitiv. That is above the historical average of 65%. But we didn't necessarily see significant pops on the back.
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Let's include Laton Spahr, President of the SS&C ALPS Advisors. Laton, it's good to talk to you today. I am curious what you have done with the results so far. Is it because expectations are so low that we are now catching up with this dynamic? Or is there any real strength in many of these companies that we've seen, mostly due to the reopening?
LATON SPAHR: Yes, I would say it's a bit of both. It's real strength, and it was management teams that led conservatively, right? We are in a phase of very uncertain recovery. As we saw at the beginning of the year, the management teams had relatively low expectations at the end of the first quarter. As they reported, sales surprises are off the charts. I mean, one of the best quarters we've seen, in order of sales surprise.
The profit surprises were pretty good. And what we did see, however, is that the response to these surprises has been rather subdued by stock prices. So I mean, it's easy to set the bar low, to beat it. However, investors knew this was going to be a good quarter. The cyclical recovery is staring us in the face. The next two quarters are looking really good.
ZACK GUZMAN: Yeah, that brings attention back to 2022. And that's going to be key in my opinion. And that's probably why we didn't see these big pops. But when you think about what could happen to the Fed and rising interest rates, it doesn't sound like there are many reasons to look forward to 2022. But talk to me about your expectations of what investors should be prepared for.
LATON SPAHR: Yes, there are certain parts of the economy that I think have so much catching up to do by 2022 that we are still seeing a very good season. I know, you know, there is always an abundance of items on sale in May, you know, the seasonality of the summer months is slowing down. The fact is, we are bouncing off that base rate from last year, which is going to be fantastic the next two quarters.
You know the Fed, last week we saw Chairman Powell reiterate his reluctant stance. I think they are a bit behind the curve when it comes to the tightness of the job market. But they won't do anything here in the second quarter to take away the punch and use that stereotype. You know, we get some verbal guidance from them in the third and fourth quarters and talk about what rejuvenation might look like. I think this is a reaction to a very tight job market that might surprise some people.
And then, you know, in 2022, yes, there will be talk of what a tightening looks like. But we are in a world where anything close to modern monetary theory will find acceptance. This framework is more about taxes, which withdraw some of the expenses, than interest rates. And I think the Fed is playing the same game.
AKIKO FUJITA: Laton, what do you mean when you say the Fed is behind the curve in the labor market? What exactly do you see that leads to this?
LATON SPAHR: Yeah, so we're looking at small businesses, and there's an NFIB survey looking for hard-to-fill positions. And we're at all-time highs. So it is very, very difficult for them to find skilled and unskilled workers. There was a great article in The Economist this weekend about McDonald's offering $ 50 just to show up for an interview.
And if you say that contrary to what Chairman Powell said last week, where he said that the labor force is still falling sharply and that he does not see anything leading to wage inflation in the short term, what we hear about businesses and what we do see from the Fed are different. And we tend to look at the emerging business phenomenon first. So these are those top-down views that are often behind the curve. And what we hear from companies is that the workforce is very, very tight.
ZACK GUZMAN: Yeah, we've heard that from some people now. And it's something we'll watch as we move forward. But Laton Spahr, thank you for coming here today to chat with us. Be good.
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