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Stocks rise after record retail sales jump

Yahoo Finance's Brian Sozzi and Alexis Christoforous discuss today's market action with Rebecca Felton, Riverfront Senior Portfolio Manager.

Video Transcript

BRIAN SOZZI: I want to bring in Rebecca Felton now, Riverfront's Senior Portfolio Manager. Rebecca, good to see you again. Market in major rally mode. Last couple-- last week we were worried about a potential correction. Now the market's rallying. What do you make of the market action here?

REBECCA FELTON: Well, thank you so much for having me. Obviously with the markets trading at the valuation levels that we are, any bit of news could move us one way or the other. But we expect there to be headwinds if we pick through data from time to time. And certainly with today's retail numbers, the news about a potential infrastructure bill overnight, those things have helped us, not to mention what the Fed has been talking about over the last week.

ALEXIS CHRISTOFOROUS: What about the Fed and what we can expect Powell to say in just a short time from now? Is there anything you think he might say today that could reverse things, and might we actually start selling off if Powell's tone is a little too pessimistic about the economic outlook?

REBECCA FELTON: Well we know that tone is important, but we also know that they are committed to doing whatever it takes. And I doubt that we will see anything that is dramatically different than what they've already telegraphed over the last week or so in terms of no intention to raise rates, in terms of what they said yesterday about buying corporate bonds. So I doubt that there's going to be any significant surprise, but we also know that the markets are priced to perfection, so tone will be important, to your point.

BRIAN SOZZI: Last week at the FOMC meeting, Jerome struck a downbeat on the economy, spooked a lot of investors. Do you expect that same tone from him today?

REBECCA FELTON: I would expect that he won't telegraph anything new versus what we saw last week. I think the Fed does a pretty good job of being transparent and not trying to rattle the markets too much. So I don't expect that anything that he's going to say is going to be dramatically different, but that doesn't mean the market might not find fault with it in terms of where we are from a valuation level and in terms of where we were just yesterday at this time.

ALEXIS CHRISTOFOROUS: Yeah, Rebecca, I mean, you're talking about valuations. You've got the S&P now trading at a forward P/E of over 23 times earnings. We're going to be wrapping up Q2 here very shortly. Do you think that earnings season is going to be a major catalyst for this market, or have investors already baked in those results?

REBECCA FELTON: We believe that, in large measure, investors have baked those results in because we have certainly discounted ahead a lot of recovery when you think about coming through Q1 earnings season fairly unscathed in terms of no dramatic reactions on the part of the market, but we were only trading at about an 18 multiple. And to your point, we're trading much higher than that now, and earnings consensus for Q2 right now is projected to be a 40% plus year-over-year decline versus, I think, a 20% decline in Q1.

So that could get some-- that could get some people's attention. There might be some shock value in that. But it is likely that the tone from the CEOs will be very important in terms of what they speak of in terms of recent business trends. I think the market will put more weight on that.

BRIAN SOZZI: Rebecca, have you made any changes to your portfolios over the past week?

REBECCA FELTON: We have, over the past couple of weeks, added back some cyclicality. Back in late March or early March, we did some risk-off trades where we tried to reduce cyclicality in the portfolios, taking out some energy, some materials, some industrials. And as we have gotten more confirmation technically, we have gone back into some of those sectors.

We're still fairly neutral and preferring areas where we believe that revenue streams will be able to withstand this economic shock better. So I think technology, specifically software services. In health care, we're leaning more into medical devices. But really still probably tilted more towards growth and quality.

BRIAN SOZZI: All right, we'll leave it there for now. Rebecca Felton, Riverfront senior portfolio manager, good to see you again.

REBECCA FELTON: Thank you so much.