Stocks on pace for fourth straight session of gains

Ryan Payne, Payne Capital Management President & Host of the Payne Points of Wealth Podcast, joins Yahoo Finance Live to discuss how markets are faring amid the pandemic and why stocks are on track for weekly gains as earnings season rolls on.

Video transcript

- I want to shift over though to a broader look at the markets here as we are seeing strength across the board. Of course, a big change from what we saw earlier this week on Monday. And that big sell off as investors reacted to the spike in COVID cases and potential concerns around the Delta variant.

For more on that, though, I want to bring on Ryan Payne. Payne Capital Management present and host of the pain points of wealth podcast. Ryan, good to be chatting with you again here, man.

I mean, when we talk about the-- the jitters in the market, it looked like you could see a potential slide here. Already though the VIX kind of giving back that big spike. And I wonder how much of it is just because we're moving farther and farther along in earnings season getting big beats from the likes of snap and Twitter here. How confident are you that, that little spat of volatility is behind us for good?

Well, yeah, it's interesting because on Monday, you had almost a 3% correction. And it's normal to have a correction during a bull market, right? I mean, if you look at 56% of the time in a given year, you're going to get a 10% to 15% correction.

And you would think at this point, we probably see something like that just because the market's been so strong. But I think the-- the stronger force here, Zach, is you've got so much cash on the sidelines, right? I mean, the government's just printing trillions.

You're starting to see wages go up as the economy starts to reopen again. And if you look at profits, I mean, the beats is that 88% of companies beat. The normal beat is like 72% to 75%.

So I think it just speaks to that, though, the data is going to continue to come in better and better. I think your biggest risk here, because everyone is starting to be concerned about a sell off if you look at sentiment right now. And I talk about my podcast a lot too. That your bigger risk here is not being wildly bullish.

With the economic data coming in stronger earnings coming in stronger, your bigger risk here is there's so much money has to go into this market. It could just virtually melt up here as opposed to a meltdown, which a lot of investors are concerned about right now.

- I mean, with that said, Ryan, we always joke that you're the value guy. But is this kind of the time to put more cash to use, and potentially put money behind some of these growth name-- growth names. Is that where we're going to see the next leg up?

RYAN PAYNE: Well, I think the irony is you think growth, the market economy is growing, earnings are growing, growth is the place to be. But when you start looking at valuations, and even start looking at performance going all the way back to last September, Kiko, when really we start to see the light at the end of the tunnel, right? That's when we start to see the news about vaccines come in.

You know, value is really outperformed growth since then. Because essentially, you have cheaper multiples. You have a lot of companies that benefit more from business activity picking up.

Like you know, let's be real about it. Amazon doesn't benefit more with the economy opening up again, right? It doesn't really do that much for their business model. And they already trade at 60 times forward earnings.

But if you're like a restaurant, or Darden Restaurant group, for instance, that owns the Olive Garden. We all of the Olive Garden. Those unlimited breadsticks.

You know a company like that last year, which is cutting costs hand over fist. And now we have a consumer who's got tons of cash to spend that wants to go out again. That's where the profit growth is going to be better.

And those cyclicals, which are traditionally value companies. I like being considered a value guy thank you. Know still have growth in your portfolio. Don't get me wrong.

But money is going to find its way to where the growth is going to be the best. In cyclicals are none here.

- Yeah. As we've talked about here too, though, right? I mean, Darden, and don't get me wrong also love the breadsticks big Olive Garden here. But when you look at the stock over the last year, up 90%, I mean, I wonder how much that has already been priced in, and kind of got ahead of where we were.

And we've seen that before maybe in prior cycles. I mean, how much more runway could you have even if you are a restaurant that's reopening here? Or does it not matter and that's just kind of where the money is going to be flowing?

RYAN PAYNE: Well, if you look at multiples, and it still trades at 23 times forward earnings, right, in line with the S&P 500, again, where you look at your average growth stock, you're probably between 30 and 40 times forward earnings. And you have a lot of places where surprises can be in the positive, especially when you've been cutting costs.

You know, for instance, like they had to last year because they had no business. The other interesting component right now, and this is why I'm a big believer in inflation not being so transitory.

And you're seeing this on the earnings calls, right? The word inflation is seeping in. In fact, it's been mentioned like on 80% plus of the conference calls for this quarter versus like 30% a year ago is like Pepsi-Cola last week. They said, hey, our raw material costs are going up.

And our labor costs are going up. Guess what? We're raising prices on you the consumer. So as long as the consumer is willing to pay more, and I argue they will be because their wages are going up, that's going to be great for earnings and great for margins, especially when you're talking about restaurants. Again, or any sort of company that benefits from the fact that we're out spending money again.

- And I think, again, the market benefited by having a little bit more to chat about this week. Monday look shaky. But as the earnings have continued to come to your point, continue to be strong here.

But Ryan Payne, appreciate you coming back on. Jack, good to have you back on CNN. But for now, enjoy the weekend, buddy.