Homrich Berg CIO Stephanie Lang joins Yahoo Finance Live to discuss market outlooks in relation to trading trends and the industry indicators from the recent jobs report.

Video Transcript

ZACK GUZMAN: I want to turn back to the markets here, though, as we are seeing a bit of a break from the three-day rally, at least for the time being, dipping just a bit here. The NASDAQ off the farthest here, close to 1% today. Of course, a couple of different things to get into around jobless claims falling to a near half century low there, as well as new updates around omicron and what that might mean for this recovery.

And for more on all that in relation to the market, I want to bring on Stephanie Lang, Homrich Berg CIO joins us here. And Stephanie, appreciate you taking the time. I mean, obviously, there's all that. There's also what you were describing there at the Fed in terms of what their outlook and policy changes might look like in 2022. But as you kind of look back and wrap up here in 2021, what are you seeing about maybe where we are when it comes to the market in the recovery?

STEPHANIE LANG: Well, we had a great 2021. And we're about to wrap it up, as you mentioned. And I think that if you look at what drove the market in 2021, a lot of that will still be there next year, but it's going to be somewhat moderated. So you had the Fed, as you mentioned, has been extremely accommodative. We like to say they're taking the foot off the gas. So they're still going to be extremely accommodative going into next year. They're still buying bonds. And we think, you know, the rate hikes will take the second half.

So we like where we are with the Fed. Don't fight the Fed. Earnings revisions have been extremely strong throughout 2021. And now we're starting to see tougher comps going into 2022. So the nice thing is, though, we are still seeing modest revisions higher. We still see a nice number in terms of earnings growth. And then, lastly, the big story has been inflation. And what is that going to do to not only the economy, but earnings?

And so that has been a worry, and that's why the Fed has acted and kind of changed their stance as far as their tapering and how quickly that will occur. But the good news is we are seeing some of those bottlenecks sort of peek out. And we think that will play out, albeit slowly. And then we'll start to see a [INAUDIBLE] on the inflation front. So to pull it all together, you know, from an economic standpoint, we saw above trend in 2021. We're going to see above trend GDP growth going into next year. And that is a good backdrop for stocks. So we're looking for good returns going into next year as well.

AKIKO FUJITA: Yeah, and we had a guest on earlier today that seemed to suggest that small caps were the place to be. In the backdrop of everything that you've described, what would be your investment play there?

STEPHANIE LANG: Yeah, we're less bullish on small caps. I think as we move from what we call an early stage recovery to a mid-stage recovery, you really need to go into those quality names, those names that can be more defensive in terms of slowing growth. So we like the high quality names, names that grow their earnings over time and are less dependent on the economic environment. Small caps typically are very good coming out of economic recessions, but as the market and the economic trajectory matures, it's really good to rotate back into those larger cap names that have the quality and can continue to grow earnings, regardless of the broader economic backdrop.

ZACK GUZMAN: Yeah, when it comes to some of those higher quality names, though, just looking through your strategy here, we've heard barbell strategy from a lot of guests this year who may not have concluded healthcare, though. And that's one of the things you're watching. It's up today, one of the only sectors up today, actually. Maybe not one of the strongest performers as a sector in 2021, but why lean into that one next year?

STEPHANIE LANG: Well, it goes back to our viewpoint that we are engaging in what we call kind of the mid stages of this economic recovery. Healthcare has been left behind. And even though it's had, you know, good earnings growth along with the rest of the market, you really haven't seen that participation. So we think there will be that mean reversion going into 2022.

In addition, if you look at the valuations, they stayed in check because you haven't seen that participation that provides nice downside protection. And if you look back at these mid-stage recoveries where you've started to see the tapering, these type of defensive names really had started to see some leadership. So you're correct in saying, you know, you haven't seen that participation yet. It may be a little early, but I think you need to start looking at those defensive names, as we expect more volatility going into next year.

AKIKO FUJITA: Stephanie Lang, Homrich Berg principal and CIO, appreciate you joining us today.