This is the "kitchen sink quarter" for every company out there: Expert

Heritage Capital President and CIO Paul Schatz joins Yahoo Finance’s Zack Guzman and Seana Smith to discuss how the coronavirus is impacting the retail industry.

Video Transcript

SEANA SMITH: For more on this, I want to bring in Paul Schatz, president CIO of Heritage Capital. We also have Zack Guzman joining the conversation. And Paul, we just heard Jared go through some of the big movers today. I want to start out with the VIX below 30. That's a fear gauge index-- something that we have been focusing on a little bit over the past several weeks here at Yahoo Finance.

Just in terms of that move today and the broader move that we're seeing across the markets with the NASDAQ up over 1%-- S&P back in positive territory, what is the number one thing that investors are focused on today?

PAUL SCHATZ: And good afternoon. Hope you guys are safe and well and sane. So we came into this morning. Futures were down. We had a pretty good run last week after the Buffett bottom on Monday where everyone came in and thought Warren Buffett turned negative. That was the classic bear trap. And then you basically had a run right to the one of the, you know, clearly one of the worst if not the worst economic report in history on Friday.

So right now I think we're back to the top of the trading range in the Dow, the S&P, the mid, the smalls. Only the NASDAQ has a mind of its own kind of sort of like it did way back in September of 1998 after we had a fairly significant correction. And then it was rally much faster than everything else. Listen, Right now, it looks like the NASDAQ-- it's like a locomotive. And that's where I think people are focused on. It's a really crowded trade.

I mean, everybody-- it's all I hear about-- they want growth. They only want it from 30 to 40 stocks. Jared mentioned the VIX earlier. I be really careful right here. VIX has collapsed from 80-ish to just under 30. You know, any more pullback in the VIX, and I think it looks like at least a short-term buying opportunity in the VIX, which would mean, perhaps, a sideways to lower market for stocks.

ZACK GUZMAN: Again, I guess, Paul, it's importantly becoming one of those-- one of those times where we are seeing a divergence. And you're talking about the tech names that have really boosted the overall market here. But on a flip side, you can look at those retailers. Still to report here, we got Under Armour today. And it was not good. And I think that would be putting it mildly. it was nasty out there.

A decline of 23% in first quarter revenues. Of course, they've been dealing with coronavirus as have all the other businesses we talked about on the show. But what's your take on maybe some of those names? I mean, we're seeing shares off 10% here. They're already given a nasty projection into Q2s. And they could see revenues drop another 60% there.

So, I mean, would it be too early to start looking at some of those names that might have been hit hard in Q1? Will it be hit hard in Q2 and trying to call maybe an opportunity there to come in here in a strong Q3, Q4?

PAUL SCHATZ: Well, there's a lot to unpack there. But first, so this-- the major theme continues to be the haves and the have nots. It's across the marketplace, in market capitalization. We talk about the NASDAQ. And it's across the sector space. And even in the subsectors space, like retail, you've got the haves, like the Etsys and the Amazons and stamps.com that really don't care if the economy opens up again.

And now you've got the other ones-- you know, Under Armour. You've got Macy's. You've got more Chico's. I'm trying to think of top of my head some of the ones that are the have nots. So you mentioned Under Armour. This is the kitchen sink quarter for every company out there. If they don't want it-- if they want to throw all the bad news in-- the market are most accepting right now of bad news-- they won't punish stocks as much as they would have and because most of these stocks, like Under Armour, have been decimated.

And I think there certainly is an existential threat to a lot of these companies that can't do almost all their business online. So if you're asking me would I start nibbling right here on Under Armour, although I love to buy when things are out of favor, and I love to sell when everybody loves things, I have a really tough time looking at some of those companies that, frankly, just made their file for Chapter 11.

ZACK GUZMAN: Hey, Paul, just stepping back here and just talking about broader the earnings reports that we have gotten out so far over the last couple weeks and couple that with the economic data that we've gotten, a number of those reports have been extremely weak. Yet, it seems like every time we get one of these negative reports-- the broader markets that we're able to shrug this off-- investors are able to look past this. I guess do you think that this is a trend that you expect to continue here at least for the short term?

PAUL SCHATZ: So I love that question, because it's causing so many people to kind of sit and scratch your head. Almost every major economic report that's come out that's been horrifically unfathomably negative has been met with an enormous surge in buying. So that's the one the average investor who says, I'm going to wait until the green light is signaled before I start buying or go back in or buy again is going to-- not going to buy till Dow 30,000.

Here's the most important takeaway. It's not so much what the news is as much as how stocks are or how the market reacts. So at least in the last six weeks-- phenomenal-- phenomenal investor response to this.

SEANA SMITH: Hey--

PAUL SCHATZ: --will argue we have to be really careful. Now, we've risen so much so fast. Those people who are going to throw caution to the wind and start buying-- at Etsy or stamps.com up here I think is a problem. But I think on pullbacks, people should look at what they own and what they want to own most importantly. So it's a very unusual market for sure.

SEANA SMITH: Well, how about the timing of this recovery, because it's interesting the data that we have been getting out over the last several days that we see some states kind of scale back their coronavirus-related restrictions, we're seeing a resurgence in some cases. So how is the investment community-- how are we interpreting this data? And how is that-- how are you bringing that into your forecast just in terms of the potential economic recovery that we could see?

PAUL SCHATZ: Depends on what lens you're wearing. The longer the lens you look at-- so I-- when I was with you guys in April and in March, I said this. I still say, Dow will see 30,000 next year. It'll see 40,000 by 2023. I have pretty high conviction in that. Between now and then, you have a myriad of scenarios. The market is clearly pricing in a V recovery in stocks and in the economy.

I don't see it being that easy. And I don't think there is a letter that aptly describes what's going to happen. So that's first foremost and key. Regarding the reopenings of state economies and the resurgence of the coronavirus-- let's remember-- the number one reason that the president and the governor's closed down the economies was because they couldn't handle the health care system being taxed.

We are two months later, we've got supplies. The systems have learned to deal with it. Things are a little better. I'm not saying we're not going to have a lot of deaths. Sadly we are. There's a personal tragedy involved here. But reopening the economies-- the system can now handle what it couldn't handle two months ago. So there's a huge difference between early March-- and now where are we? Almost the middle of May.

SEANA SMITH: All right, Paul Schatz, president and CEO of Heritage Capital. Thanks so much for joining us today.

PAUL SCHATZ: Thanks, Seana. Be well.