U.S. GDP: Jobs numbers ‘still very strong,’ strategist says

Yahoo Finance Video

RiverFront Investment Group Senior Market Strategist Rebecca Felton joins Yahoo Finance Live to discuss U.S. GDP data, earnings, consumer spending, and the outlook for markets.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: GDP rose more than expected in the fourth quarter. Our next guest, though, says mixed signals from the latest earnings reports and economic data has left her in a neutral holding pattern. RiverFront Investment Group Senior Market Strategist Rebecca Felton joins us now.

Rebecca, we were talking about this earlier that it is confusing right now. You have the macro data, but even amongst the companies that are reporting, some of them cutting jobs and talking about a weak economic environment. And then as Sozz pointed out, companies like ServiceNow seeming to indicate that demand is remaining robust. Like, how do you get sort of objective clarity in this environment?

REBECCA FELTON: Well, good morning, Julie. And thank you all so much for having me. It is a difficult period to navigate through because, to your point, the earnings season hasn't been terrific, but it also hasn't been as bad as was feared. And maybe we're going to see the end here of some of these downside earnings estimate revisions.

But you do see that GDP number this morning. The job market is-- or the jobs numbers are still very strong. And even though the consumer has cooled somewhat, we are still seeing spending growth there. So there are a lot of mixed signals. But what we want to do is get through earnings season and make sure that the guidance isn't much more negative than what we have already seen before we start making decisions about where to put more money to work.

BRAD SMITH: What's the low end of that guidance that you would be willing to accept or perhaps in the range of what you're anticipating?

REBECCA FELTON: Well, I think as much as anything, it won't be just about earnings. It's going to be about profit margins. We've already seen profit margins come down against a tough comp in Q4 of 2021. Per the last FactSet report we saw, profit margins were around 11.4%, again, down about a point from last year but still hanging in there with that five-year average. So that's going to be a really important component as much as the absolute earnings numbers.

BRIAN SOZZI: Rebecca, how concerned are you about the personal savings rate in this country? 2.9% seems very, very low. Do you think that will start to impact consumer spending at some point?

REBECCA FELTON: It would almost have to. And of course, that is of concern. The other thing that is of concern is the fact that credit card debt, while still manageable, is starting to tick up at the same time these interest rates are going higher. So we know savings rates are lower.

Folks are having to stretch those dollars further, particularly as the essentials continue to move higher. Food prices are still very high, even though energy prices have come down. So the consumer is something that we're watching very closely. And as you know, given the component that that is of GDP, it's very important throughout the rest of the year.

JULIE HYMAN: So watching the consumer, but are you pulling back from the consumer right now, Rebecca? Is this something that you're enacting in your investment strategy as of yet? Are you lightning up on consumer holdings or did you already?

REBECCA FELTON: We had already lightened up just a little bit. The areas that we're still leaning into obviously a little more cyclical. We're still slightly overweight energy. We are still neutral to slightly overweight in our longer horizon portfolios in those big mega mega-cap techs. We're leaning into banks.

We've neutralized our international. We're still not willing to go overweight there because we're still in a show me state as it relates to earnings. And of course, we've added back the fixed income. You are getting paid to be in fixed income now. It's not just about protection to the downside. So that's also additive to strategies at this point.

JULIE HYMAN: And do you feel like that's your highest conviction call right now is getting into fixed income, or is there something else that you think is maybe a little bit overlooked that people aren't paying enough attention to?

REBECCA FELTON: Well, it's hard to find really overlooked because you've seen such a resurgence in some of those value-oriented sectors, so we have been adding back there. But again, we had come from a significant underweight in fixed income if you think about where we were six months or so ago, and we were back more to neutral. So that is an area that we will probably be looking towards in terms of attractiveness in the coming months.