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'We anticipate growth names to see somewhat of a rebound': Penobscot Investment Management's MacPherson

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Penobscot Investment Management Portfolio Manager Colleen MacPherson joined Yahoo Finance Live to break down what she expects to see in 2021 from the market and why investors should look to growth stocks.

Video Transcript

SEANA SMITH: We want to continue this conversation with the S&P in record territory. NASDAQ, like Jared was just saying, leading the way, that index up almost 1%. We have Colleen MacPherson, portfolio manager, CFA. Colleen, thanks so much for taking the time to join us today. Let's just start with some of the leadership that we're seeing that Jared was just going over. Technology continues to be in favor once again today. Consumer discretionary another outperformer. What stands out to you about this?

COLLEEN MACPHERSON: I mean, I think so far this year, we've seen this rotation into more value oriented names from growth to value. But as we enter into earnings season, we anticipate growth names to see somewhat of a rebound. Because we expect strong earnings coming out of the growth names. But overall, I think the trend of this year into value, small cap, more cyclical names will continue as the economy reopens, and more people are inoculated and we get back to normalcy.

EMILY MCCORMICK: Colleen, I want to pick it up on your note on earnings season since we are heading into the first quarter report, starting with the big banks next week. And I'm wondering, you know, we've been seeing these earnings estimates revised up by a record amount, FactSet saying about 6% between late December and late March. And I'm wondering what you think investors should really be focusing on here, given the strength that we've been seeing in some of these cyclical names, like the banks. What are really some of those key metrics you'll be looking for to see that these companies are exceeding, or at least, meeting Wall Street's raised expectations?

COLLEEN MACPHERSON: Yeah, so I mean, I anticipate the banks to meet expectations and probably go beyond expectations. We've seen for the last several quarters that earnings as a whole have beat expectations. And but the market is trading at an all-time high. And it seems a bit overvalued at this point, at 22 times forward earnings. So we really need to see a catch-up in the E to justify the price of the overall market. And I anticipate that banks will continue to do well. Homebuilders will continue to do well. Consumer discretionary, there's a lot of pent-up supply. And there's a lot of money in the market right now, a lot of stimulus checks that consumers will be looking to spend. So although the overall market looks a bit stretched to us, we do still anticipate opportunities in certain areas.

SEANA SMITH: Colleen, as the market looks a little overstretched to you, are you anticipating-- I guess, how big of a pullback could we potentially see?

COLLEEN MACPHERSON: I don't know if we see a pullback from here, but I do want to say that the market is not the economy, and the economy is not the market. So last summer, a lot of people were asking why the economy is doing so poorly and the market is doing so strong. Well, the market is forward-looking. So the market was anticipating exactly what is happening right now, better than expected jobs numbers, the economy to come back stronger than anticipated and faster than anticipated. So, I'm guessing over the next several months, we'll see a very strong economy, but we may not see the market follow in lockstep.

EMILY MCCORMICK: And to that point, Colleen, wondering now with the S&P 500 at record highs, already up 9% for the year to date after last year, 16% gain, do you see the second half of this year maybe being a period of more stagnation when it comes to stock price gains? Or do you think there are some catalysts that haven't been priced in yet that could bring the market another leg higher?

COLLEEN MACPHERSON: I think it's going to be difficult for the market to go another leg higher from here, given where we stand today. But especially if we do see inflation pick up faster than anticipated, that the Fed will have to react to that. And we have seen so far this year, interest rates, the 10-year has more than doubled. I know it's come off a bit this week, but we are seeing yields rise. And we're seeing, although inflation has not meaningfully increased at all, we are seeing inflation already in areas like homebuilding, in lumber prices. So there is signs of inflation out there. And we think that it will continue to creep in and will be reflected in the market.

SEANA SMITH: Colleen MacPherson, Penobscot Investment Management, thanks so much for joining us to--