Tech catalyst will be 'consistency both on the top and bottom line': Market Strategist

Rebecca Felton, RiverFront Investment Group Senior Market Strategist & Portfolio Manager, joins Yahoo Finance to discuss opportunities for investment amid earnings season.

Video transcript

SEANA SMITH: Rebecca, we're looking at another day of gains, the NASDAQ today hitting a record high. What do you think about this optimism? Is it warranted?

REBECCA FELTON: Well, thank you so much for having me. And I think it is warranted. The growth has exceeded expectations, both on the top and bottom lines. Emily was mentioning in her report out on earnings, and we're seeing it across all sorts of sectors, not just consumer facing but also those industrial sectors. So that is very encouraging, particularly as we look ahead into the fourth quarter.

SEANA SMITH: Rebecca, the big news out of DC, we got President Biden laying out the framework of his slimmed-down spending package. It's just around $1.75 trillion. What are investors-- what are the investor implications of this package? How is the market looking at this?

REBECCA FELTON: Well, you know, everyone's been so focused on the tax ramifications, right, both corporate and consumer. And the longer it takes to get this passed, the longer that gets pushed back, the odds continue to go down in terms of how high the level is and not being as bad as was originally feared.

I guess the concern now is is this actually-- you know, is his proposal that he put out today-- where are the details, and how well is that going to land once it gets to the floor members, right? We're talking about leaders who have agreed upon it, and once you get to the people who actually vote on it, it'll be interesting to see how it plays out. We may be a ways away from an actual deal.

SEANA SMITH: Yeah, certainly we've heard a number of people warn of that today, that while it might be a slight step forward, there's still a lot of uncertainty just about the potential timing of a deal here.

Rebecca, I guess how should investors be approaching the markets right now/ We have just about two months left in the remainder of this year. We know that we are in the very important holiday quarter. What do you think is the most attractive opportunities now?

REBECCA FELTON: Well, we are still overweight equities, but we are doing that with a barbell approach. We have maintained sort of a balance of both growth and value, leaning into tech but also leaning into industrials as it relates to infrastructure. We've gotten a healthy dose of consumer discretionary.

And we've been doing that because of the unevenness in the data. You know, each day this week, we've seen a seesaw in terms of economic data coming in above or below expectations. And as we continue to muddle through this recovery and the uneven pace of it, we think the barbell approach is the best way to go. Again, still overweight equities and leaning into the US.

SEANA SMITH: Rebecca, you mentioned tech there. We have Apple and Amazon, two of the big tech giants, set to report after the bell today. When you're looking for-- when you're identifying what's attractive in tech right now, I think a big thing that investors are facing-- the big question is whether or not those valuations, whether or not they are still overvalued. What's your view on that?

REBECCA FELTON: Well, I would agree. They are overvalued, but remember, a valuation is a condition, not a catalyst, and the catalyst I think for technology is going to continue to be the consistency, both on the top and bottom line, and we're willing to pay up for that quality.

SEANA SMITH: Rebecca, inflation is one of the headwinds facing the market right now. Certainly it seems to be a little bit more stickier-- or stickier, I should say, than we initially expected it to be. I guess how are you or have you at all adjusted your investment strategy as a result?

REBECCA FELTON: We haven't adjusted anything per se because of the inflation persistence. Obviously we're also looking not just at headline but at things such as education costs, rent, medical costs, and those sorts of things.

And one of the things we also think is important to note is there will be a time when these backlogs have worked through. It'll probably be painful to get there as we've heard company managements talk about pressures in terms of their input costs, but we've also heard good news in terms of their pricing power and the fact that demand is still strong. So we're not willing to adjust just yet on inflation, but obviously we're watching it.

SEANA SMITH: Do you expect it to affect consumer behavior at all, or is there enough money saved up from the past a year and a half that you think we're going to be able to weather this actually OK?

REBECCA FELTON: Well, we believe that, you know, consumer confidence that came out this week was better than expected. The National Retail Federation yesterday talked about their expectations for a very strong holiday season. So it seems like the consumer is still willing to spend and has the money to go out and shop. So we're still banking on them.

SEANA SMITH: And, Rebecca, the 10-year yield, we have to bring that up. It's moving slightly higher today but back below 1.6%. Do you think we've seen yields peak at this point, at least over the next couple of months?

REBECCA FELTON: I think that's hard to say. I think until we get more clarity-- you know, we have an FOMC meeting next week, so we'll probably get some more news in terms of timing around policy action. Right now, everybody is trying to put forth their best guess in terms of what's going to happen, when it's going to happen. And I think until that is out there that you're going to see these yields continue to fluctuate.