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So I actually expect that earnings are
gonna be pretty strong out of Microsoft,

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out of Apple.

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The majority actually the tech companies
because they've been very resilient

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from a CapEx perspective. Over
the last basically year to date.

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I'm Merrill Brown. Our
guest today is David Wagner,

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portfolio manager at Aptus Capital. David,

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welcome to the program and thanks
for coming in from Cincinnati.

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Hey, thanks for having me Mell.

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It's an important week at the Fed and
probably an even more important week for

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big tech earnings. How should investors
be looking at this critical moment.

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Right now Merrill It feels like a lot of
people are very optimistic heading into

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this earning season. If you actually just
look at the last five earning seasons,

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the market has always rallied off of
better than expected earnings per share

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guidance and commentary
from management themselves.

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But I think that there's a few, not
landmines per se out there in the market,

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but I think that the Fed,

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given the fact that they're having a
meeting during the middle of a most,

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one of the most important earnings we've
had in a very long time can definitely

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or potentially throw a wrench in the
spokes to the tire for a lot of these

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companies. And what do I mean
by that? I think, you know,

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one thing I always tell my analysts and
a lot of the other portfolio managers

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here at Aptus is you have to follow what
the market is telling you. And if you

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go back to March 9th,
the collapse of SIVB,

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the Silicon Valley Bank,

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many people forget that the S&P
500 was actually flat on the year.

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And ever since then, the
market has actually raised
about 19% since March 13th.

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So that tells Merrill that that
date is a very important date.

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And what is it telling me?

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It's the fact that the market took off
the right tail risk of interest rates,

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meaning that they don't believe that
interest rates could go very much higher

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for very much longer.

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But ever since over the last four
months given this rise in the S&P 500,

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you've actually had interest rates start
to scale back up to that four and 5%

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level, depending if you're
looking at the two and 10 year.

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So my big question from the commentary
from the Fed this week is, hey,

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are you gonna keep that hawkish
tone? Because if they do,

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I really think that the market can
finally start pricing in again the rate of

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some type of right tail
risk of interest rates,

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which could definitely deplete the
valuation of tech stocks specifically.

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And what do you expect
from tech stocks this week?

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Well, I think a lot of the market's
focusing on consumer spending right now.

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And if you look at the Magnificent seven,

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basically they don't have a whole lot of
dependency on consumer spending itself.

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So I actually expect that earnings are
gonna be pretty strong out of Microsoft,

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out of Apple.

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The majority actually the tech companies
because they've been very resilient

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from a CapEx perspective over
the last basically year to date.

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And also from a sentiment perspective.

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So I actually see a lot of bullish
tailwinds remaining for them.

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But the perception is what does the
market perceive that they should be valued

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at right now?

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And if you look at a lot of the companies
that have already reported this year,

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those that have beat on sales, those have,

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that have beat on bottom
line earnings per share.

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They've actually underperformed the market
the next day by about 23 basis points

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when historically they've actually
outperformed the market by about 200 basis

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points. So Merrill, that tells me
right now from a sentiment perspective,

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a lot of the good news could be priced
in right now for those tech stocks.

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And what does that scenario mean for
the possibility of soft landing or

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something even more difficult?

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You know, it all comes down to sentiment
in that aspect in, in my opinion,

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obviously if you're gonna continue to
have some really well insulated earnings

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per share at the S&P 500 level,

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that's gonna give the aspect
that investors could believe
that a soft landing or

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more poorly a no landing
is becoming more apparent.

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And that's obviously given that the
fact that the S&P 500 is trading at 20.5

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times forward earnings
right now, it means that's,

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that's kind of the base case right now.

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And early 2024, will we see a recession?

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That's a great question. You know,

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what I'd be following if we are going to
have some type of recession in 2024 is

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going to be consumer spending. Consumer
spending has been very resilient,

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not just over the last six months,
but over the last basically two years.

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And one thing that I always tell a lot
of my analysts is a phrase is that the

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market in the short term tends
to focus on the rate of change,

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but over longer periods of time
tends to focus on the absolute level.

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And if you look at the consumer
through those two lenses,

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the rate of change of the US household
net wealth has actually just gone into

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negative territory on a 12 month
basis. And whenever that has happened,

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we've actually, it's coincided
with some type of recession.

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But let's look at the latter half
of that argument right there.

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The over longer periods of time,

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the market tends to focus
on the absolute level.

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The US household net wealth is actually
about 35% higher than where it was

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heading into Covid and about 120% higher
than where it was just 10 years ago.

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So that's what I'm gonna be focused on,

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is the propensity for the US consumer
to continue to spend in the near term.

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'cause I really think that can drive if
the market's gonna enter some type of

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recession in 2024 or not.

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Next, David Wagner on
strong market categories,

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investment opportunities in
home building and healthcare.