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Odds are the Fed moves forward this year with tapering: Envestnet PMC Co-CIO

In this article:
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Dana D’Auria, Co-CIO at Envestnet PMC, joins Yahoo Finance Live to discuss expectations for the upcoming earnings season, outlook on the Fed, and the energy markets.

Video Transcript

JARED BLIKRE: We want to now talk about earnings season. That kicks off Wednesday, not only with the big banks, but also Delta Airlines. And this is amid-- this is going to be a day when we also get the minutes from the last FOMC meeting. And we know how important those are to the taper talk. And for all of this, we want to bring in Dana D'Auria. She is the Co-CIO at Envestnet PMC. So, thank you for joining us, Dana. I want to begin with earnings season. What are we expecting overall and maybe with the big banks that are really kicking it off this Wednesday?

DANA D'AURIA: Yeah, so, obviously, the first two quarters, we were seeing a lot of beating of estimates in earnings. Third quarter, it's not as clear, right? We're seeing sort of not necessarily the expectation of beating estimates that we were seeing before. Not to say that it won't be a good quarter for earnings, it's just that we do see some tapering in terms of our expectations on kind of blowing out, I guess, what the expectation set is.

JARED BLIKRE: Well, you said the magic word "taper," so I've got to use that to segue. The Federal Reserve set for its next meeting on November 2nd and 3rd. We just got the last payroll report, the monthly one that they're going to see before that. We had those headline disappointment numbers that we've been talking about Friday and today. What are your expectations for the Fed going forward? Most people still think that the taper is on, but there's a lot of nuance there.

DANA D'AURIA: Yes, I completely agree. I do think odds are that they move forward this year with tapering. It's not to say that they couldn't pull back. I think the decision got a little bit complicated by how Congress handled the debt ceiling. I think they would have preferred to taper after the debt ceiling was handled on a longer basis, right? Maybe we get through January with what they've authorized now.

So, that complicates things a little. Fed Chair Powell now with Warren taking a stance against him, that's not as certain as it was. So there are a few things in the mix. But net, net, I think we're still probably looking at tapering starting this year.

JARED BLIKRE: Well, I just want to stick with that for a second because in your notes, you highlight-- and I remember this-- I lived through it-- 2011, 10 years ago, Fed ended QE. And this was right before that debt ceiling debacle that, as you say, caused the US credit downgrade. And the stock market, I recall, was pretty haywire for a couple of months there. Might we see a replay of this, given the fact that we've simply kicked the can for another two months or so?

DANA D'AURIA: Anything is possible. There's a lot of brinksmanship for sure. I think the betting odds are that we don't, you know-- I think to the Republicans kind of being willing to extend the olive branch, even for what happened currently, says that there's not really a stomach for playing fast and loose the way there was maybe then. And we've all lived through that. And we saw the outcome, and it wasn't great.

So I would say it's unlikely, but the problem is, of course, that we can go right up to the edge. And markets have to price in whatever that likelihood is, right? So you're still going to get market turmoil, even if it is unlikely that it works out to an actual default.

JARED BLIKRE: Well, and I want to ask you about Fed Chair Powell up for renomination potentially at the end of January. And this seems to me to be an underappreciated, underpriced potential risk in the markets, especially with the evolving situation with Vice Chair Richard Clarida. I think if he has to resign, it really ratchets up the odds that somebody else takes the job. I'm just wondering what your take is.

DANA D'AURIA: Yeah, it's an interesting situation because he's been pretty dovish. And, you know, if he does get replaced, it's likely with someone even more dovish. So, you know, the betting odds are still that he does win the renomination. I think it's 70-plus percent was the last survey I saw. So I think it's likely that he does get renominated. But I agree with you. You know, markets have a lot to contend with, and we seem to keep throwing more at it. Of course, oil, right, and energy prices in the mix as well.

So, yeah, likelihood is that he's still nominated, but obviously, there's a chance that he's not. And I agree with you that markets would have to sort of absorb what that means.

JARED BLIKRE: Well, you mentioned the energy market. So let's talk about that we got WTI crude up over $82 per barrel today. It hit that earlier after backing off a little bit. But the momentum has been to the upside, no matter what the market or the headlines that have been thrown against the market. You have the Saudis and OPEC Plus running a tight supply market. What's-- where do you see oil and energy going from here?

DANA D'AURIA: Yeah, well, it's interesting. I mean, when you have headlines talking about rationing electricity in different parts of the globe, I think, you know, certainly, the-- there's been, obviously, an issue with getting ramped up production again now that the economy is reopening. And of course, because natural gas, there's some shortages that's leading to higher oil prices. And it's interesting because it raises a question about, are renewable energy sources there yet to kind of take over and help?

And ironically, we're seeing weather and issues with weather preventing some of that. And of course, that's one of the reasons that we want to move into renewables to begin with. So, I do think that, you know, oil prices have been ratcheting up and ratcheting up. I don't see that stopping anytime soon. But it definitely begs the question about these renewable sources and moving forward with other ways to get energy.

JARED BLIKRE: Well, Dana, we look forward to having you back here. Dana D'Auria, Co-CIO at Envestnet PMC.