Why the consumer is this earnings season's focus: Strategist

US futures (YM=F, ES=F, NQ=F) are trading higher Monday morning as the market digests March retail data that beat Wall Street expectations. Commonwealth Financial Network Chief Investment Officer Brad McMillan joins The Morning Brief to discuss why investors should focus on job growth and consumer confidence when evaluating the current earnings season.

"I think it's about the consumer. What we've been talking about is consumer concerns. For example, we saw the Michigan consumer sentiment survey bull back a little bit. It's still healthy, still up from where it was several months ago, but I think the real question going forward for every company is going to be how are they doing with the consumer? What are they seeing the consumer buy? I think that's that's really what's going to determine where earnings go for this year," McMillan says.

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This post was written by Nicholas Jacobino

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SEANA SMITH: You are still looking at gains across the board, all three of the major averages opening to the upside. Now, the market looking to rebound from its worst week of the year. So here with more, we want to bring in Brad McMillan. He's Commonwealth Financial Network's chief investment officer. Brad, it's great to have you here.

So let's talk about the biggest factors that are driving the market right now. We have the hotter-than-expected or better-than-expected retail sales print out this morning. Earnings actually looked pretty good out this morning from Goldman Sachs. But then, of course, you have the geopolitical risks, the rising tensions going on right now in the Middle East. How are you evaluating this from a strategist standpoint?

BRAD MCMILLAN: Well, Seana, when you look at what's going on, it's easy to get caught up in the details, but I think we need to focus on two things. [COUGHS] First of all is valuations. You know, we've seen interest rates spike a bit. And that's not unexpected. But the market is largely getting its head around. And we saw a couple of bad days, but the valuations are kind of stable where they are.

So that means it all comes down to earnings, and that essentially means domestic demand. So I'm keeping an eye, as I have been for a year and a half now, on job growth, on consumer confidence, and the international risks, the real. But they're always there, so I'm not too concerned about them in the short to medium term.

BRAD SMITH: Brad, you're one of the second major guests that we've had on to say demand is one of the larger themes to listen for this earnings season. Where do you believe that may moderate? Or what are the key words that investors should zero in on when they listen in to any commentary around demand, either in the press release or in the earnings call that takes place thereafter?

BRAD MCMILLAN: I think it's about the consumer. I mean, what we've been talking about is we've been talking about consumer concerns. And for example, we saw the Michigan consumer sentiment survey pull back a little bit. Now, it's still healthy. It's still up from where it was several months ago. But I think the real question going forward for every company is going to be, how are they doing with the consumer? What are they seeing the consumer buying? And I think that's really what's going to determine where earnings go for this year.

SEANA SMITH: Brad, how do you think the Fed is looking at the recent developments here? Because again, you have another econ data point that's out showing that consumers are still out there spending, even in the face of uncertainty. And then you have the risk that we could see energy prices move to the upside if the tensions in the Middle East were to escalate. So what does that mean for the likelihood of the timing of the first rate cut and how many cuts we will likely see before year-end?

BRAD MCMILLAN: Well, Seana, I've been saying this for a long time. I think people are asking the wrong question. People are saying, when is the first rate cut? How many rate cuts will there be? I think the right question is, why on earth would the Fed cut rates? Inflation is still high. Job growth-- and remember, those are the two statutory priorities. Job growth is still strong. So there's no reason from the Fed's perspective to cut rates.

Not only that. When you look at it from a going forward perspective, the more seriously you take the risks, the more you have to say, OK, the Fed is going to hold off on cutting so they can keep their powder dry until they really need it. And they don't really need it right now.