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Katherine: Earnings season so far has been better than expected, but we're not out of the woods yet. Randy Watts, Chief investment Strategist at William O'Neil joins me. Randy, I know you're probably getting this question a lot, but is there still a risk of an earnings recession on the horizon?

Randy: There is a risk. I would say the thing to really focus on is that the economy is kind of bifurcated right now. The consumer part of the economy as we saw in the Q2 GDP numbers is actually doing quite well. Consumer spending has really held up, but business spending has been, has been weak and decelerating. Or you actually saw that again this morning where both the PMI and the ISM were weak and both decelerated in July from June. And I think that speaks to the fact that the trade controversy or trade wars is really causing an issue in the sea level offices of corporations where people are worried about making a capital allocation mistake. And that is kind of causing somewhat of a freeze in business spending.

Katherine: So recently, democratic hopeful. Andrew Yang blamed Amazon for closing 30% of stores and malls. Looking into retail earnings we haven't really heard a whole lot from. Should we be worried?

Randy: I mean I think we're still optimistic at William O'Neil that retail earnings are going to be okay because consumer spending, like I was saying a minute ago has really hung in there. Others, a couple of names we like in that space, we really like Lululemon as they've shifted more into men's, more sales, internationally, especially in China and also, more sales online. So there are names we like and we do think that's an area where the earnings should be relatively good.

Katherine: So you just mentioned Lulu, but are there any other names in the retail space that investors should be paying?

Randy: Sure. We, you know, we still have, we still have Amazon. Ironically on our, on our focus list we've liked Wingstop, which is a restaurant company that focuses on takeaway wings. So there's quite a few names than discretionary space we still like.

Katherine: So outside of retail, what sector is catching your eye?

Randy: Well, one stock we really like in the communication space is actually Twitter. Twitter's a company which had seen a deceleration in their daily active user growth, but that's actually turned around. It turned around in Q1 and it accelerated again in Q2. So if you look at their daily active users, they have about 139 million now versus 122 million at this time a year ago. We're also encouraged that they're really focusing on putting more live content on Twitter, particularly in the video area. They've got a new agreement with Comcast to broadcast, some of the 2020 Olympics. They've also got an arrangement with ESPN and with Viacom and several other providers.

Katherine: Oh my gosh. Between Netflix and Disney Plus and now Twitter going live. But I just feel like cable's just kind of screwed. Huh. Okay, so beside we've mentioned co communications, we've mentioned retail. Are there any other sectors that you're looking for?

Randy: You know, one area that's gonna I think be interesting to watch over the next year is healthcare. I think clearly that stock that that's an era is probably gonna be pretty volatile depending on who gets the nomination. On the democratic side. Medicare for all we think would really hit a lot of health care stocks, particularly, healthcare services like hospitals. But if it looks like that's not gonna come to play, we think that's a sector I could potentially rally later in the year.

Katherine: All right, so you've mentioned kind of one, a market catalyst, which definitely the election, we've got trade talks, we've got the Fed, which is always going to be on people's minds. What other market catalysts are there heading into the final half of 2019.

Randy: I think the most important thing to focus on is really three things. The first is, while this has been a good earning season, as you mentioned earlier, it's actually been a bad or new season for guidance. So Q3 earnings for the S&P, and Q4 estimates have both come down. I think we really want to see those estimates start to stabilize. The second thing is can we get any kind of resolution or clarity on the trade issues. If we were to get those, I think you could really see capital spending pickup in the country. And then the last, like you said, as the Fed, initially people were worried after Powell's comments yesterday that it's kind of a one and done for the Fed. But that would be unusual. Usually the Fed moves more than once when they started erection. In addition, if you look at this morning, the Fed funds futures are about 60% looking for an additional cut in September. So I think the Fed is going to be very data dependent. I think they could cut more later in the year. Normally it takes six to 12 months for rate cuts to work their way through the economy. So that means these rate cuts could maybe start to help the economy at the beginning of next year.

Katherine: Speaking of guidance, as you said, Q2 guidance is really weak. Are we expecting, when we're looking at Q3 guidance, should we expect weaker guidance?

Randy: Well, it's been weaker for Q3. It's been weaker for Q4, Q3 which originally was forecasted to be up. Right now, estimates are calling for it to actually shrink a little bit, and for the fourth quarter, going into earning season, people were expecting about a 7% gain for S&P earnings. It's now down to about 5% so I think one of the things that's really important for stocks is for the six month and 12 month forward estimates to start to at least stabilize, if not start to rise again.

Katherine: Randy, thank you so much for joining us.

Randy: Thanks Catherine.

What should investors keep an eye on when it comes to the second half of 2019?

Randy Watts, Chief Investing Strategist at William O'Neil, talked to TheStreet about what he's watching as we head into the second half of 2019 and what he expects from retail earnings when they're released. 

Here's a look at the catalysts Watts is watching.

 
"I think the most important thing to focus on is really three things. The first is, while this has been a good earning season, as you mentioned earlier, it's actually been a bad or new season for guidance. So Q3 earnings for the S&P, and Q4 estimates have both come down. I think we really want to see those estimates start to stabilize. The second thing is can we get any kind of resolution or clarity on the trade issues. If we were to get those, I think you could really see capital spending pickup in the country. And then the last--like you said--as the Fed, initially people were worried after Powell's comments yesterday that it's kind of a one and done for the Fed. But that would be unusual...In addition, if you look at this morning, the Fed funds futures are about 60% looking for an additional cut in September," said Watts. 

Don't Fret an Earnings Recession and Keep an Eye on These Market Catalysts