Relief is on the way for markets: Strategist

Stocks (^DJI, ^IXIC, ^GSPC) have experienced a hectic week, with PCE and GDP data releases alongside underwhelming earnings from the Magnificent 7 tech giants. Merrill and Bank of America Private Bank senior investment strategist Lauren Sanfilippo joins Market Domination to discuss market outlooks.

Sanfilippo notes that the week's economic data indicated a disinflationary trend, which she says is "good for the Fed in terms of what they communicate next week." She adds that "relief will be on the way," which is being reflected in current market behavior.

Regarding earnings, Sanfilippo suggests they will indicate whether a market rotation will continue, stating, "if that 493, the other stocks, will catch up and the Mag 7 will catch down," potentially leading to a broadening out in the market.

Looking ahead, Sanfilippo expresses some caution on profit growth, saying that estimates for 2025 may be "a little lofty." However, she remains optimistic about the near term, telling Yahoo Finance, "I do think we can finish out this year sort of near where estimates are" for markets.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Angel Smith

Video transcript

More on this chaotic week for Marcus.

We're joined now by Lauren Sanfilippo, senior investment strategist for Merrill and Bank of America.

Private bank.

Good to see you.

Nice to be here.

So today was interesting one because we had so earnings.

Uh, three M investors liked Bristol Myers.

You know, they liked, uh, the P CE report.

Investors seem to cheer that.

And that was on top of the other economic data this week.

GDP 2.8%.

It seems like investors getting more comfortable with that soft landing story.

Is that how you see it?

Well, I'd agree with that.

The GDP story 2.8%.

There was a lot to like there.

And then today, inflation there was that follow through and that disinflationary trend.

So I think that's good for the Fed in terms of what they can communicate next week.

It's good for maybe that September rate cut.

Um, but relief will be on the way, right?

And that's the overall message.

And that's also how markets are trading.

And then, if you look at the earnings backdrop as well, right, Josh mentioned a couple of the positive reactions.

Obviously, this week we have very negative reactions to the first two of the mag seven.

So now that we're getting more next week, how do you think that is gonna play out?

And how does that feed into the narrative that we're gonna see a broadening of the earnings growth?

Right?

Earnings are really providing the market direction when I think about can this rotation sort of be sustained for the rest of the summer into your end sort of thing?

Um, and I think earnings really will tell us if that 493 the other stocks will catch up and the mag seven will catch down.

Right?

Because those are the two predominant stories that we need to see play out.

Um, that broadening, though I think, really is dependent on what happens with small cap earnings.

Um, next week, maybe a little bit of a mixed bag for mag, and they also don't have to trade in the same direction and have sort of the same earnings backdrops, right?

So that's also a possibility.

And then there's one very late season, uh, mag seven earner.

That but that we won't get to know anything until the end of August.

Yeah, exactly.

You can say it.

Yes, Laura.

What?

What?

Broadly your expectations for corporate profit growth this year.

What are you looking for?

Yeah, we think right around where we're at this, like, mid to high single digit pro profit growth.

Definitely looks good for this quarter.

That's really healthy.

Um, but as has the economic backdrop, I think what's more challenging is when I think about 2025 estimates around 275 a share, That might be a little bit lofty.

Um, so I think there are risks to that view sort of coming down.

But I do think we can finish out this year.

Sort of near where estimates are, um you know, Lauren, you're a strategist in the private bank.

And so you're talking to particularly wealthy individuals, and I'm just curious what you're hearing from them.

And if that differs from kind of what other investors are concerned about right now, Yeah, it's interesting, I think a lot of client conversations around the uncertainty for this year, right?

There's obviously a big political election in front of us.

Um, I'm having a lot of conversations around cash positions, too.

Still, because we still have those 5% yields.

And I think, um, it's just the realisation that those sort of yields will not be here forever.

Right?

So come call it September.

That 5% yield won't be here.

Yeah, and so I So you know, there's all this talk about the cash, the so called cash on the sidelines.

As a result of that, the people have a lot of their money still in short term instruments in cash, et cetera.

Are they being attracted back into the market yet?

Because they're concerned that those 5% yields aren't gonna last forever.

Or are they waiting?

Yeah.

I think they're getting ready to deploy here some capital.

So I think that's a really encouraging thing.

And by the way, I think that that's also additive to that broadening story.

Um, because people do still think that those valuations assigned to some of those tech areas are still lofty, which means that maybe there's better opportunity elsewhere.

You mentioned small caps Lorne, which has been a big theme.

Investors are so interested in such a quick, aggressive move there.

How many questions are you getting questions about small caps from clients and And what are you telling them?

Yeah, I mean, the small cap trade, I think here there's a lot of technical things that happened, right?

Just around Positioning sentiment, that sort of thing.

Um, but the small cap move we've actually been We tried to catch the small caps early, right?

Because it's better to be early than late, because look at the toward pace at which small caps sort of appreciated.

Um, once they did see that rotation.

So there is some interest.

I'll say, Um, but again, that's another earning story.

You're gonna have to see those small cap earnings come in pretty strongly, I think to see that broadening sort of persist.

And finally, you Your remit is not just the US.

You look at global markets, but you like the US.

Still best right now in terms of investing opportunities.

Why is that?

Yeah, we've been carrying this US bias now for some time, and I think it still makes sense here.

Um, just globally, there's been this big election cycle, right?

So that's been happening.

Um, and I think that's been fueling uncertainty.

Um, I think global growth, though, generally has bottomed.

And that's encouraging so we will be looking for picking off opportunities internationally.

But I think, you know, you hear from China.

This isn't the recovery that they were supposed to have, right?

It's mostly downbeat data.

And so I think there aren't too many opportunities abroad right now.

And Europe would be for the value opportunity, right?

That's sort of how we're couching it.