The quarterly surge in earnings reports is about to get underway on Wall Street, and in this segment of the MarketFoolery podcast, host Chris Hill asks Motley Fool Asset Management's Bill Barker to talk about what he and his team will be most focused on when those releases start rolling in. "Margins," says Barker, and the divergence in profitability of companies.

As he notes, earnings have been pumped up in 2018 thanks to two things: the hefty business tax cuts that Republicans made in December and margin growth. But while all businesses benefited from the government's largesse, the ability to increase margins is less evenly distributed. The Fools talk macro conditions, sector specifics, and more.

A full transcript follows the video.

This video was recorded on Oct. 8, 2018.

Chris Hill: Earnings season kicks off in earnest later this week. The banks will be out Thursday and Friday, and that really kicks off the last quarter of the year. What is something that you and the folks at Motley Fool Asset Management are watching this quarter? It can be a company, it can be an industry, it can be a particular metric. What are you looking for?

Bill Barker: Really, I'm looking at margins more than anything else, and the divergence, I suppose, in the profitability of companies. Of course, the economy has been very strong, and the top and bottom lines are exceptionally strong. I think earnings were up 26% on an earnings-per-share basis last quarter, which is remarkable growth and is something that is fueled to a large extent by tax cuts, and everybody knows that; but also to a very large extent by the improvement in margins. That is not distributed equally across all companies. The manufacturing and old economy companies are much more affected by increased transportation costs and, for some industries, increased human labor costs.

It's been the tech companies that have been fueling this margin growth, and been fueling the earnings growth. They're expected to have another phenomenal quarter of growth. But as you can tell, over the last couple of days, the market is beginning to look at growth companies a lot more cautiously than it did four or five days ago.

Hill: Is that a good thing? Because it kind of seems like it could be.

Barker: It's a good thing for future returns. Lower prices are better for future returns. It's a bad thing if you already own something that's down 10% and you wanted to sell it in the near term. It's a bad thing if you're speculating on the near-term price of stocks. I mean, interest rates are the biggest story out there right now. It'll be interesting to see how companies that do have a lot of debt -- which, again, is the more your old economy types of things than the tech companies -- what they're talking about, their expected costs, because interest rates have materially gone up, and are pointed higher. So, what do they have to say?

Hill: That was something we talked about, I think it was actually our lead story on Motley Fool Money last weekend. We were talking big macro stuff. One of the things that Ron Gross and Matt Argersinger keyed in on was specifically what you're talking about. Bonds being at a seven-year high, 10-year Treasuries being at a seven-year high. At some point, if they keep going in that direction, if they keep heading north, they start to become more attractive than certainly some stocks in a given person's portfolio.

Barker: Yeah. So, interest rates going up, is that a good thing or a bad thing, it all depends on where you are. For savers, getting actual returns in their bank accounts is a new thing. Over the last 10 years, it's been a forgotten experience for a lot of people. For bond investors, who have really only made money on the rates continuing to go lower and the way lowering rates increases the value of bonds you already hold, but decrease the rates that you expect to make going forward, the bond market now is beginning to be a place where you might consider putting money with an expected return more in the 3% to 4% range than had been the case for a decade.

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