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Seema Shah, Chief Global Strategist at Principal Asset Management, joins Yahoo Finance Live to discuss the outlook for the market as earnings season begins.
Even after outperforming in 2023, Shah said the Magnificent Seven’s tech stocks may not be as “strong” as 2024, given tailwinds such as AI and the Federal Reserve’s interest rate outlook. He then said he did not expect investors to “significantly reduce their exposure.”
Shah said he expects margins to contract, but overall he expects a “pretty positive year.” He said first-quarter earnings could be a “volatile quarter” due to consumer weakness, Fed policy moves and high valuations.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by angel smith.
video transcript
Sheena Smith: The market here has a bit of a calm open, so let’s take a look at the stocks at the open. The Dow Jones Industrial Average fell back into negative territory, below 38,000, after closing above that level for the first time in history on Monday.
Financial settlement season is finally in full swing. Are these quarterly results enough to tell the market that this rally we’ve been seeing may have some momentum? For more information, I would like to invite Seema Shah, Chief Global Strategist at Principal Asset Management. And Cima, if you look at the recent rally that we’ve seen, a lot of it has been driven by some of the semiconductor stocks, some of the tech stocks that were under pressure at the beginning of the year.
Do you think we can still see some upward movement here?
Seema Shah: Okay. It’s wonderful to be with you. Look, obviously technology, especially the Magnificent Seven, did really well last year. And, of course, this year there are questions about whether that can be sustained, especially when you look at valuations, which are very limited.
Now, from our perspective, this year is probably not going to be a good year or a strong year like last year for these technology companies. But there are some underlying factors behind it, and we don’t think they’ll be completely resolved yet. Of course, there is an AI story that continues to raise expectations and productivity. Therefore, that should sustain earnings going forward and keep the technology strong.
And the other thing is, as long as there are concerns about the economic cycle and what the Fed is going to do next, you’ll still see investors looking for big balance sheets and big brands. That’s what many of the Magnificent Seven really want. Bring it to the table. So I’m hoping for a decent performance this year, although not as good as last year, but certainly not something where I’d start cutting down on exposure significantly.
Brad Smith: Seema, is there one central theme that has emerged this earnings season and continues to propel this market towards further all-time highs?
Seema Shah: So at the end of last year’s earnings season, one of the things everyone was looking at was evidence of a consumer slowdown. It’s been talked about for a long time. This predicts that personal consumption will eventually start to cool down. And we’ve seen a lot of CEOs really call out that concern during earnings season. So I think there will be a lot of questions about that this time. Are they witnessing a long-awaited consumer slowdown?
But more importantly, what’s happening to the margins? This is because although we expect this year to be a fairly positive year, we do expect some margin compression. So some pressure comes through. So from our perspective, Q1 could actually be a bit of a volatile quarter. Of course, we may see the market pull back a little bit as people start to question what the Fed is going to do. But how strong are the profits actually? And can it really justify the wildly overhyped valuations it’s received so far this year?
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