On the monetary side we’re going to have wind at our backs for the rest of 2021: FBB Capital Partners President

Mike Mussio, FBB Capital Partners President joins the Yahoo Finance Live panel to discuss the latest market action.

Video transcript

ZACK GUZMAN: But first, it's not just bank earnings that have investors buzzing today. A bit of a one-two punch of optimism on the unemployment claims front, as well as retail sales, both coming in better than expected. Retail sales accelerating 9.8% in the month of March. That was the highest clip that we've seen in 10 months. It also beat expectations. Maybe a bit of a boost from stimmy checks coming through there. And jobless claims finally breaking below that 600,000 mark for the first time since the pandemic began, just 576,000 initial claims being filed last week versus the 700,000 expected.

And for more on that, let's kick things off in the back half of the show today with Mike Mussio, FBB Capital Partners president. He joins us now. Mike, thanks for taking the time to chat here. I mean, obviously, both of those things very strong in terms of the expectations and the beat there. Talk to me about what you make of those beats and where you think it puts us at this stage in the recovery.

MIKE MUSSIO: I think the recovery is intact, right? The fiscal and monetary stimulus has-- is continuing to work its way through the system. The retail sales number for March is well-timed with $1,400 stimulus checks that you referenced. And on the monetary side, we're continuing to have wind at our backs, it sounds like, for the rest of 2021. So, on the policy side, it seems to be pretty smooth sailing for sure.

And the other piece that's happening because of that and the increased vaccinations is we continue to have this opening up. And that's, I think, picked up in the unemployment number, the first time claims this morning, and falling unemployment numbers. So, you know, all of these things should lead to more aggregate demand, higher GDP, and that should kind of work its way down into earnings, which we're starting to see here this week.

AKIKO FUJITA: Mike, you painted a pretty rosy picture there. Certainly all things lining up at least for the economy to pick up steam here. But what do you see is the biggest risk that could derail this recovery story?

MIKE MUSSIO: Well, there's two potential flies in the ointment, right, we think. The first is just valuation is not cheap by any stretch. So I know that Myles was talking about kind of earnings estimates. And I do think you look at UnitedHealth and some other companies today that are actually raising guidance for the balance of 2021. That's good. That can support some growth and rising share prices. But things aren't cheap, right? We feel a lot better. A lot of this is kind of, we think, baked into those stock prices. We're trading at 23, 24 times this year's number, 20 to 22 times next year's estimated number for the S&P.

True, we have low interest rates. But I don't think potential corporate tax hikes are baked in. And, you know, 21% to 28% that's a 33% move in taxes. Those taxes coming from profits, and those profits affect what those estimates and actuals might be. So that makes things look potentially even more expensive. So I think those two things, we're going to get a little bit better read on as we get through Q1 and into Q2 and Q3. But those are risks.

ZACK GUZMAN: Yes, so Mike, if you're looking at the risks right now in valuations, where are you seeing the best opportunity for investors looking to put cash to work? Because it sounds like healthcare is one of those areas you're targeting now.

MIKE MUSSIO: Yeah, so if the market is trading at 20 to 21 times next year, right, there's plenty of companies that are trading 30 times plus. There's also companies that are trading below that or in more reasonable ranges compared to where they are historically. So we like United Health Care. The stock's up today, all-time high on good numbers. They beat pretty healthily on both the top and bottom line. They raised guidance. We like Danaher, which has kind of a picks and shovels company to a bunch of different aspects of COVID, including vaccinations.

So, healthcare as a sector is interesting. Some of the other areas to look just in terms of growth versus value, there still is a pretty big disconnect there. And we're starting for the first time in a long time to actually look at some of the different international markets where valuations are a little bit more reasonable. And as vaccinations in developed economies around the world kind of follow the US, that story should improve as well.

ZACK GUZMAN: Yeah, healthcare the weakest sector here-- second weakest sector only to consumer staples, the biggest laggard on the year, only up by about 2%. But Mike Mussio, FBB Capital Partners president, appreciate you coming on here to chat with us today. Be well.