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Strategist believes pent-up consumer spending demand isn't over yet

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Rebecca Felton, a senior market strategist at RiverFront, joined Yahoo Finance to analyze market trends.

Video Transcript

ADAM SHAPIRO: Rebecca Felton, she is a RiverFront senior market strategist. And we appreciate your being here. I noticed in the notes that you sent us that within your firm, there are some, as you put it, tactical rules flashing caution. Can you tell us more about that?

REBECCA FELTON: Yes, Adam, thank you so much for having me. We do have a very strict investment process that involves those tactical rules. One of those is don't fight the Fed, which, obviously, the Fed continues to be on our side, but the two rules that are causing a little bit of concern are that 200-day moving average on the S&P 500, which is the trend. So you hear the rule, don't fight the trend. And it is moving higher, but it's doing so at a rate that is so fast we think it could be unsustainable.

And then, of course, the third is beware of the crowded extremes. And right now, we know that crowd sentiment is in that extreme optimism territory, whether it's weekly, daily. So those two things are keeping us cautious. But we are still overweight equities and still in a risk-on position at this time.

SEANA SMITH: Rebecca, we're going to be hearing from Peloton here after the bell. And I think there's lots of questions out there from investors not specifically about Peloton, but when it comes to this reopening trade gaining steam, whether or not those outperformers during the pandemic, if they will continue to lose some steam there. How are you looking at that?

REBECCA FELTON: Well, certainly, as we have navigated through earnings season and you've seen the very strong growth with consumer discretionary being the leading sector, but it's in the form of automobiles and apparel and specialty retailers. So we're seeing those away from home plays really starting to gain momentum. And we would expect that that is going to continue as we move through the rest of the summer and the restrictions continue to be lifted in various locations.

ADAM SHAPIRO: Rebecca, how much longer can we rely on consumers? You point out that a third of the money has been saved. A third have used the pandemic to pay down debt. And now it seems as if some are going on a spending binge. How long will that last? And what does it mean for our investments?

REBECCA FELTON: Well, with consumer spending being roughly 70% of GDP, obviously, the consumer being healthy is really critical for the US economy. So we don't expect that the spending is going to necessarily go all the way. Particularly when you think about the housing market, how strong that's been and just the follow-on spending that you do when you purchase a home in terms of furniture, in terms of modifying things to make them the way you want to, and of course, then the implications that that has for the jobs market. So there's a lot still to come from the consumer in terms of pent-up demand, in our opinion.

SEANA SMITH: Rebecca, you just mentioned the jobs market. We got to talk about the jobs report that we are going to be getting out tomorrow that's for April. When you take a look at March, we saw a very, very rebound-- a very, very huge rebound, I should say, in hiring. What is the market anticipating that we'll see tomorrow?

REBECCA FELTON: Well, I think the unemployment rate should dip below 6% tomorrow. And that's, of course, the reported rate, but we know that the real number is much larger in terms of the number of folks who have been out of the job market for more than six months or the folks who have just simply given up. So we're still a long ways from that full employment target. But we do expect to see the number continue to trend down. We've been very encouraged by the pickup in jobs in the services sectors, particularly in the restaurants and hospitality areas, which we know have been disproportionately impacted during the shutdown. And we've seen certainly some rebound there.

ADAM SHAPIRO: So a very quick question for you when we talk about the future. There's pressure on the Fed. You said don't fight it. But there's pressure for them to maybe raise interest rates sooner than expected. Any possibility before the end of the year?

REBECCA FELTON: Well, we all are waiting for them to blink. And I think that we don't have to go very far to remember what Chairman Powell said last week. And that was, it's not time yet. And I think we should take them at their word. They are loathe to surprise the market. So I think that you'll see it telegraphed well in advance. And we're not there yet, again, going back to those unemployment numbers, which we know are still probably closer to 8% or more, rather than that below 6% number that we talked about. And that is one of their mandates. And we're a long ways from full employment. So I don't think we're going to see rates go higher this year.