Don’t Expect Earnings Blowout or Market Rallies, Pro Says

With the Federal Reserve and interest rates dominating headlines in recent weeks, investors will shift their focus back to individual companies when earnings season kicks off July 8. But don’t expect a blowout, Paul Schatz, president of Heritage Capital, told “Nightly Business Report.”

“People are craving top-line growth. They’re not getting it. They’re making the numbers on the bottom line, but the top-line growth is not there,” he said. “I think it remains a long-term drag on the market.”

(Read More: Earnings: Here We Go Again)

That means the market highs of the first of the year are unlikely to be repeated. Schatz said that Heritage Capital had forecast that 2013 would be “tremendously frontloaded,” and he still thinks that’s correct.

“It’s a least 50/50 that the highs are in for the year,” he said. “I could see a poke above to make a nominal new high, but I wouldn’t put all my eggs in the equity basket right now.”

Investors will have the opportunity to buy stocks 10 percent to 20 percent lower over the next three to six months, Schatz said. The focus will be more on single stock risk, which means that any market rallies over the next few months will be narrow, he added.

(Read More: Despite Market Volatility, Stocks a Good Place to Be: Pros)

That said, Schatz is still bullish on financials, biotech and health care, but warned that investors should be selective.

“The key is, when the market corrects—which I think it will over the next couple of months—they’re all going to get it,” he said. “It depends upon to what degree.”

Schatz also sees some relative value in the bond market, which has been hit pretty hard. Specifically, he’s looking at higher-quality bonds and those with floating rates.

“I think the next decent move in bonds—the bond market probably rallies, which means rates come down a little bit,” he said. “I think that`s where you probably have the third quarter. Bonds should be OK this quarter, and I think for the more aggressive, you could tiptoe into the gold and the metals.”

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