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What to expect from FOMC this week

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Colleen MacPherson, CFA, Portfolio Manager and Director of Research at Penobscot Investment Management, joins Yahoo Finance's Kristin Myers to break down the latest market action, as earnings season rolls on and investors prepare to hear from Fed. Chairman Jay Powell.

Video Transcript

KRISTEN MYERS: Markets right now continue to remain a mixed bag. So let's chat today's market moves. We have Colleen MacPherson, Portfolio Manager and Director of Research at Penobscot Investment Management here with us.

So I kind of want to start with today, Colleen. We had seen all three major indices in there earlier in negative territory. Right now, the Dow is the only one that remains under pressure. And we were chatting about why that was. And everyone was pointing out to stimulus, the fact that it might be happening a little bit farther out than some folks were hoping or anticipating.

I'm wondering if you imagine stimulus right now kind of hanging over markets to that degree. Because I laughed, and I said, if anyone investing was expecting Congress to move expeditiously, they have not been paying much attention to politics over the last decade.

COLLEEN MACPHERSON: [LAUGHS] Right. I mean, I anticipate the stimulus bill to get passed, but I think it is going to likely take several weeks for that to happen. I mean, where we have a divided Congress, a $1.9 trillion proposed bill after a $900 billion bill that just went through in December. So I don't think $1.9 trillion is likely to even be passed. But I do think that in the stimulus bill, it will be more targeted to individuals who might not have that $1,400 of direct payments. There likely will be negotiations there.

And I doubt that the federal minimum wage will be risen to $15. And I think this is an important time in the Biden administration to really seek unity. So rather than taking measures like reconciliation to get a bill passed, I think it's time to sit down and, hopefully, come to some consensus.

Because there are certain things that are bipartisan. And everyone agrees that the rollout of the vaccine is a necessary and small businesses that are hurting, individuals that are hurting. But I think, you know, the Republican side of the party, they want to be more targeted.

KRISTEN MYERS: Right. Let's switch gears now and talk about earnings and the passion and excitement around earnings. Anyone that reads the Yahoo Finance "Morning Brief" would have seen that fourth quarter earnings are doing much better than expected. I'm wondering if you think that's because analysts were a little bit more downbeat in their expectations than they should have been, or if there might be something else going on there.

COLLEEN MACPHERSON: Yeah, I think over the past year, analysts in general have been more downbeat on their expectations. So we've seen quarter over quarter, better than anticipated earnings, and that's no different this quarter. So so far, I think only 13% of companies had reported earnings as of this weekend. And 86% of those companies that had reported had beat earnings expectations. And so that's a nice trend. And this week, there's over 100 companies reporting earnings, and we'd expect that trend to continue in things to come out better than anticipated.

KRISTEN MYERS: Right. On average, up about 23% over estimates. Now, you mentioned in your note that you think tech will continue to do well but not as well as last year. I'm wondering if you think that would leave investors disappointed, who might punish them given these high expectations that we have.

COLLEEN MACPHERSON: Yeah. I mean, you've already seen that in Apple going into their earnings. You've seen the price continue to increase. And there's a lot of anticipation around these tech names. So any hiccup will likely create a dent to those stocks. But also, last year, the FANG names made an average return of 60%. And the other 495 companies in the S&P, their average return was 3%. So as the economy reopens, and things start to pick up, we'd anticipate cyclicals to do better in that kind of environment. Not that we anticipate tech to do poorly, just a catching-up game.

KRISTEN MYERS: We've got about a minute left, Colleen. We've got a Fed decision coming out this week. I'm wondering what you're anticipating.

COLLEEN MACPHERSON: Not much change. I think Powell will come out with the same message that he's been giving all along-- lower rates for longer. And I don't anticipate anything to change in the bond purchasing program. I think it's going to be a very dovish message, which will be a positive for the markets.

KRISTEN MYERS: All right. Colleen McPherson, Portfolio Manager and Director of Research at Penobscot Investment Management. Thanks so much for joining us.