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Credit card companies will be ‘particularly important’ in determining consumer health: Strategist

Invesco Chief Global Market Strategist Kristina Hooper joins Yahoo Finance Live to discuss earnings expectations, the overall health of the U.S. consumer, and Fed policy moves to address inflation.

Video Transcript

Well, investors taking a glass half full approach this afternoon with some indications the Fed could slow rate hikes to about 25 basis points. The blackout period has started, however. So it's all about results season now. The likes of Microsoft, Tesla, Intel among the host of reports on the docket this week. Here to break it all down, we want to bring in Kristina Hooper, Invesco chief global market strategist. Kristina, it's great to see you here. So we're off to a pretty strong start this year. You have the S&P up just about 4%, the NASDAQ, the leader, up about 8% since January 1. What do you make of the gains and what we've seen from earnings results so far this season?

KRISTINA HOOPER: So I think that a lot of the gains we've seen thus far have been driven by optimism around inflation moderating and the Fed getting closer to hitting the pause button. I don't think they've been driven by earnings, even though thus far, although it's early into the season, we've seen relatively good results. I think the expectation is that there is another shoe to drop in earnings. Some of it we'll see in the reports for the fourth quarter. Some of it remains to come in following quarters. But I do believe that that is actually going to be more of a headwind in the coming months as opposed to a tailwind.

- Are there particular sectors you think will be punished when we hear these earnings start to roll?

KRISTINA HOOPER: Well, I think any company that really negatively surprises is likely to be punished. There are opportunities to manage expectations. And, typically, Wall Street rewards that unless it's really a very bad earnings report. So my expectation is that it is not going to be sector specific. It's really going to be company specific. I mean, certainly we've seen a lot of negative headlines around the tech sector, especially around layoffs. But that can be a double-edged sword, right, because while it's an admission of problems that most investors have probably already recognized, it also can be viewed as a positive because it's an opportunity to cut down costs and reposition for the future.

- We get huge reports from IBM, from Intel, from Tesla, from Microsoft, from Boeing. And at the end of the week, we get a couple of big credit card names-- Amex, MasterCard, and Visa. What do you expect to learn?

KRISTINA HOOPER: So what's most important to me is really what I glean about the overall economy. And so, certainly, any tech company can tell us what's happening in terms of demand, for example, cloud computing. We heard from one company that many companies, their clients are looking to cut down on costs in terms of storage and cloud use. So that's very helpful in terms of gauging the environment.

The credit card companies are going to be particularly important because they're going to tell us about the health of the consumer, which, of course, is critical to the US economy. We've already heard from some financial services firms that have told us about an increase in credit losses, for example. One firm that reported earlier today talked about a K-shaped recovery. And that's all very helpful in terms of filling in a picture about the US economy right now and what we can expect going forward.

- So Kristina, lots of focus on earnings. But also clearly a focus on Fed policy in terms of what we're going to see the Fed do next. Mohamed El-Erian, he was on this morning saying that he thinks that maybe 50 basis points, he's in that camp, rather than 25 in terms of what the Fed should do. He said that in an interview this morning. What do you think is appropriate coming up here for the Fed?

KRISTINA HOOPER: I think 25 basis points is appropriate. We're seeing inflation moderate. Certainly where it is today is not where the Fed wants it to be. It's a ways away from the inflation target. But the Fed has to, essentially, execute a delicate balancing act. It doesn't want to do so much that it essentially kills the US economy. Think of it as someone getting in the shower in the morning. You get hit with cold water. You turn the spigot all the way in the other direction. And then you scald yourself. We want to prevent that from happening. We don't want the Fed to scald the US economy. So I think 25 basis points makes sense.

- Surprisingly how refreshing a cold shower can be, Kristina. As a cold shower fan, I just want to put that out there. I've been trying to sell Seana on this for quite some time. Cold showers can be therapeutic.

KRISTINA HOOPER: I'm not sold. And I never will be.

- I'm with you, Kristina.

- I had hot water heater broken for two weeks. I had no choice. You mentioned some headwinds as we see earnings start to pour in. China begins to reopen. How big a tailwind is that for some economic data?

KRISTINA HOOPER: Well, it's certainly a very big positive for the Chinese economy. And that can extend out from there. So Asia will benefit. We're likely to see better economic growth across Asia as a result of the China reopening assuming all goes well, which I think it will after a hiccup in the first quarter. And, of course, that can even help the global economy. So should be a positive. Although, the US is on a very different trajectory in terms of really trying to limit the level of slowdown and avoid a recession right now. China is in a very different place. It has ripped off a Band-Aid and is ready to, really, I think take off. It'll take a little time. But I think we're going to see strong growth this year.

- So Kristina, given the reopening in China, which we were just talking about, Fed policy, also earnings, how are you positioned right now?

KRISTINA HOOPER: So I have warned our investors, our clients that we should anticipate a tug of war. We're going to be buffeted by different economic data points as well as Fed speak. But I do believe as the year progresses and as it becomes clear that the Fed is going to hit the pause button and it does, in fact, hit the pause button, that really creates a place for the economy to begin to recover. It will take some time. But stocks and markets in general tend to discount that in advance. So I do think we're going to see more of a risk-on environment as the year progresses. But right now, I anticipate a tug of war between risk on and risk off.

- All right, Kristina Hooper. It's kind of like the shower. Invesco chief global market strategist. Thanks so much.