Stocks Back Over Brexit Lows, Will Earnings Season Dent the Rally?

CNBC hosted CIO Jack Ablin of BMO Private Bank and CIO Ben Pace of HPM Partners to discuss earning season's impact on the market rally.
By Amanda Schiavo ,

NEW YORK (TheStreet) -- On the second to last Thursday in June 2016 the U.K. voted to exit the European Union. When markets in the U.S. opened the next morning there was a massive selloff due to the uncertainty surrounding the decision.

Now, a few weeks later markets in the U.S. and around the world have moved back to their pre-Brexit levels. In the U.S., the Dow is back over 18,000, the S&P 500 is up over 2,100 and the NASDAQ is higher than 4,900 on Friday afternoon.

The major averages have been up seven of the last eight sessions, CNBC "Power Lunch" anchor Michelle Caruso-Cabrera reported this afternoon.

The concern now is whether the market will continue this rally, or if the upcoming earnings season will halt the rise. To answer that question CNBC hosted chief investment officer Jack Ablin of BMO Private Bank and CIO Ben Pace of HPM Partners.

"It's great to be back where we were over a year ago," Pace told Caruso-Cabrera. "In the context of earnings being down about five or six percent over that period of time, so you've had multiples continue to expand."

"I think this most recent run-up though is anticipating the fact that the earnings recession is over. We're going to see a slightly negative second quarter, but third quarter, fourth quarter and into next year, you should see at least 5% to 6% positive earnings growth," Pace continued.

Caruso-Cabrera questioned if the market is fairly valued or if there is more on the way.

"I think it's fully priced on where fundamentals are," Ablin responded. "I would tend to agree with Ben. The thing is we're going to need earnings, we're going to need something to sink our teeth into to support higher price from here."

The market has been challenged at somewhere in the 2,150 area, Ablin went on to say. He pointed out that investors are going to need something more "tangible."

"The jobs numbers were great, but right now analysts are anticipating a 5% decline in earnings over the last four quarters. They're expecting revenues to be roughly flat. We're going to need to see that turn around in order to get equity prices to sustain higher levels from here," Ablin said.

Based on this Ablin says he is buying large-cap dividend supported companies such as Johnson & Johnson (JNJ) - Get Report and Chevron (CVX).

Earnings season begins next week.

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