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The U.S. is the strongest market and economy: Strategist

In this article:
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Chris Konstantinos, RiverFront Chief Investment Strategist, joins Yahoo Finance’s Kristin Myers and Alexis Christoforous to discuss outlook on earnings season and the market.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, let's stick with the markets, bring in Chris Konstantinos. He is chief investment strategist at RiverFront. Chris, good to see you again. We were just going through some of the big earnings of the day with Jared. And I would just like your thoughts on where things are at the moment because the bar was set so high. You know, is the market sort of setting itself up for failure here?

CHRIS KONSTANTINOS: Well, it's possible. And thanks for having me, Alexis. First of all, you're exactly right. The bar is pretty high. If you looked at earnings revisions coming into Q1 reporting season, you'd see the earnings revisions have been solidly positive, not just in the United States, but actually in every major region we track, for probably six months now. So that means that analysts have been consistently revising their forecasts higher and higher and higher. And so, yeah, the bar is pretty high.

Now I know it's pretty early in earnings season. I think we've had less than a quarter of companies report at this point. But I will say that still something like 80% of those companies that have reported thus far have beat those already raised expectations. So, the bar is high. So far, companies are jumping over it. But I'm actually a little bit more concerned maybe after the dust settles on earnings season. I suspect earnings season is going to be pretty stellar.

But then after earnings season, we go into a little bit of a news lull. And that could, in my opinion, be where maybe the market runs into a little bit more near-term headwinds, just because it'll be a little bit of the-- you've had the sugar rush, if you will, of earnings coming in. And then you're kind of in a bit of a lull. And with markets as high as they are and sentiment as frothy as it is, I could plausibly see the market taking a breather here for the next couple of months.

KRISTIN MYERS: So then, Chris, do you think what we're seeing then now is the start of that breather? Or are you anticipating perhaps a correction a little bit later down the line?

CHRIS KONSTANTINOS: Well, that's a great question. I spent some really good quality time this morning with our head technician here at RiverFront walking through all the market internals, a lot of the stuff that Jared likes to talk about on this program. And our major takeaway from that is from a risk perspective, the market internals are still really strong. Now we focused on the United States in our analysis today. And I would submit to you that the US is indeed the strongest market, as well as the strongest economy.

But nonetheless, the internals, particularly on the NYSE, look really good. If you're looking at advanced decline lines, if you're looking at RSI-- quite strong-- if you're looking at just general point and figure or trend following statistics, the market is frothy. But the underlying internals to us from a technical perspective look good. And then when you flip to the fundamental side, you know, our rules for a shorter term money is all about, don't fight the Fed, don't fight the trend. Beware the crowded extremes.

And right now, the crowd is a bit of an optimistic extreme. But those other two rules still look pretty good. So, will it be a meaningful correction or more just the market, sort of that pressure release valve needing to let some air out of the market for a few months? I suspect it's the former, not the latter. But nonetheless, keep in mind that people will freak out because this market has done almost nothing but go straight up now for quite some time.

And even what I would consider a garden variety correction, which would be in the neighborhood of, let's call it, less than 10%, that would only get you back down to what we consider a minimum retracement level of, call it around 3,800 on the S&P. So it would probably scare some people. But in the context of how far this market's come, that's probably not anything to be too scared of. In fact, it might even be healthy for the market to reset expectations a little bit.

ALEXIS CHRISTOFOROUS: All right, Chris Konstantinos, chief investment strategist at RiverFront, thanks for joining us today.