Be careful of chasing market 'exuberance': Strategist

The S&P 500 (^GSPC) has seen as historic run recently, with the index gaining over 19% in the past 6 months, and multiple firms raising their target goals for the index. While some bullish sentiment remains, the index has come down from it's all-time highs, raising some concern among other investors.

Wells Fargo Investment Institute Global Investment Strategist Veronica Willis joins The Morning Brief to give insight into the overall market and why investors might want to remain cautious among market uncertainty.

Willis offers this advice to investors: "There are still economic uncertainties and there's still some potential for a little bit of a market downturn. So maybe taking some profit in some of those areas that have performed well and rotating into some of the sectors that we do like right now, energy, industrials, materials, and healthcare could be a smart move as those valuations might be better at this point."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video transcript

SEANA SMITH: Stocks moving higher this morning as earnings, will they take center stage? 180 companies, that's about 40% of the S&P 500 value reporting this week. Earnings optimism snapping the S&P and NASDAQ six-day losing streak this week.

Despite that optimism, though, our next guest saying that she thinks that traders might want to be more cautious this time around. Veronica Willis, Wells Fargo Investment Institute global investment strategist, is here. It's great to see you, Veronica. So talk to us just about why at least you're being a bit more careful this earnings season.

VERONICA WILLIS: Yeah, I think where we want to be cautious, we've seen over the last quarter or the last 12 months or so really good performance out of some of these higher-performing sectors in tech, and communication services, and consumer discretionary. And so we're really cautioning investors against chasing that exuberance going forward. We're a little bit more cautious. There are still some economic uncertainties. There's still some potential for a little bit of a market downturn.

So maybe taking some profit in some of those areas that have performed well and rotating into some of the sectors that we do like right now-- energy, industrials, materials, and health care-- could be a smart move as those valuations might be a little bit better at this point.

BRAD SMITH: That's interesting, Veronica. And so it starts to get at this question of whether or not the slide in stocks that we had seen, at least at the tail end of last week and in aggregate here is a blip or kind of a bigger shift towards pricing in inflation. What are you going to hear? What are you going to be listening for from some of the companies that are reporting about how they are monitoring the demand environment?

VERONICA WILLIS: Yeah, I think those, you know, expectations for consumer spending are going to be really key in that forward-looking guidance and that forward outlook. So we've seen recently some surprising strength in the consumer, and that's really what's, you know, lifted the economy and kept that economic growth very stable.

We are expecting a bit of a slowdown in economic growth throughout the year. And so I think it's going to be really key to think about how are those companies addressing any potential slowdowns in retail spending and that slowdown in the consumer, and how will they protect against those economic uncertainties?

SEANA SMITH: So, Veronica, what do you think all this means in for the broader equity market action? Are we likely going to see maybe some more downside pressure then in the weeks ahead?

VERONICA WILLIS: Yeah, I think there's definitely that potential for a little bit of downside in the market. And we really saw that play out last week with that, you know, robust economic data, and that refocusing on what will the Fed do with monetary policy. We're getting some data out later this week that I think will be important for driving markets.

We're going to get that PCE inflation data, which we know the Fed watches very closely. We're going to get that first print of first quarter GDP. So I think those are all going to be key for the market as well as what they're expecting from earnings here.

BRAD SMITH: Veronica, can AI mentions during the earnings season save a lot of the potential reaction and volatility that we're expecting? Can AI mentions alone save this earnings season?

VERONICA WILLIS: I'm not sure if the mentions alone can save the earnings season, but it's definitely a hot topic, and investors are going to want to see how this emerging technology is going to fold into not just the tech sector, but other sectors as well. It's going to be something that's a longer-term theme and investors are going to want to know how these companies are going to fold that in.

BRAD SMITH: Veronica Willis, Wells Fargo Investment Institute global investment strategist. Veronica, great to see you. Thanks so much for taking the time here today.

VERONICA WILLIS: Thank you.