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Companies that meet and beat expectations are going to be rewarded in this market, and ones that aren’t are going to get spanked: Chief Market Strategist

Rich Steinberg, Chief Market Strategist at The Colony Group joins the Yahoo Finance panel to discuss the latest stock market update.

Video Transcript

ZACK GUZMAN: I want to shift over to what it might mean for the broader market here, too, as we talk about the reaction to earnings that we have been getting and the way that, I guess, Qualcomm is the latest example of what Dan was talking about there, perhaps not the pop we'd expect to see and very high bars to meet. For more on that and what it means for the market, I want to bring on our next guest. Rich Steinberg is chief market strategist at The Colony Group. And Rich, I mean, you were just hearing that discussion on Qualcomm. But as we see earnings come in, what's your take on maybe what that signals in terms of where we're at with risk-on, risk-off sentiment right now as we move forward in 2021.

RICH STEINBERG: Yeah, thanks, Zack. At the beginning of the year, earnings estimates were for around $166 for the S&P. But over the last five weeks, we're already at $171. So we're seeing a tremendous amount of upbeat conversations coming from calls. Our theme is for 2021, this is the year of great expectations. And we'll see if those expectations get met.

Earnings so far are beginning to work their way through, which could change upgrades to S&P targets, where we're continuing to look at our target, which was conservatively at 4,000. But companies that meet and beat expectations are going to be rewarded in this market. And ones that aren't are going to get spanked.

AKIKO FUJITA: When you're talking about specific sectors where you see opportunities, how have you shifted up your allocation based on those expectations or the optimism that we're starting to see come through because of the developments we've seen with the pandemic?

RICH STEINBERG: It's a great question, Akiko. You saw a little bit of a stall from the mega-cap names in the fourth quarter and a rotation beginning to occur in small cap and mid-cap, which had a huge move. Financials have had a big move. Oils have started to have a big move.

We're still overweight technology and health care. But we're also significantly more overweight international and emerging markets. We think that the 12-year kind of a lull of the US domestic and international baton tossing has been too long.

And if the administration gets through a lot of their fiscal policies, we'll continue to see a weak dollar. So you have to look for sectors that are going to be beneficiaries of the weak dollar. EM and international in particular will work that way.

ZACK GUZMAN: Rich, the next big thing we're watching here is what comes through on that $1.9 trillion stimulus proposal and what does get through. A lot of people expecting that number could come down as debate goes on between Democrats and Republicans. But what is your-- what is your thought around what that might do for the market, as a lot of people have been connecting the dots from the last round of stimulus checks to kind of the bubble sentiment that we saw in GameStop and some other stocks? What are your what are your thoughts on how that might impact things here?

RICH STEINBERG: It's an interesting dilemma for both parties, right? The sentiment was let's try to play nicely in the same sandbox. And the Democrats threw out a big, big number at $1.9 trillion. The Republicans came in with a measly number the other day. And I think we will see a big number. It'll be less than 1.9. And I think the devils will be in the details.

The question that you bring up around the stimulus checks and people staying at home and is that cause or effect of the speculation with the Fed on hold for a long time, we're seeing a speculative bubble in certain small parts of the market. But we've seen this before, Zack, in the '70s. We had a bubble in gold in the '80s. It was the Nikkei in the '90s. It was the NASDAQ in the early part of 2000. It was oil, and then most recently FAANG.

Up to FAANG, all of those bubbles were burst by the Fed and overseas federal reserves raising interest rates. We're not there yet. So I think money is flowing at the margin in some of these small speculative plays. And I think it's something that has to be watched. We're definitely in a caveat emptor environment, where the buyer needs to know what they're buying and be aware of things that they don't know what they're doing.

AKIKO FUJITA: Diversification, the word we keep hearing from our guests. Rich Steinberg, chief market strategist at The Colony Group, it's good to talk to you today.