Inflation 'remains an open question,' strategist explains

U.S. Bank Senior Vice President and Public Markets Group Co-Head Lisa Erickson joins Yahoo Finance Live to discuss inflation data and volatility.

Video Transcript

ZACK GUZMAN: I want to turn over to the market reaction to all of this. And just a bit ago, I did see the Dow dip into the red. It's kind of been fluttering as some of those gains have been given back through the session. For more on what some of the inflation numbers are signaling for the rest of the year, though, I want to bring on Lisa Erickson, US Bank Senior Vice President and Public Markets Group Co-Head who joins us now.

And, Lisa, you were just listening to that discussion there on the inflation front. Obviously, pretty important to highlight kind of where we're going and if we are seeing any improvements what it'll do for earnings as we kind of move forward in the year. I mean, what are you seeing right now as maybe yesterday's pop, some of this recovery might have been, I don't want to say too premature, but how are you viewing it?

LISA ERICKSON: Well, our base case, Zack, really is that we're going to get some modest positive movement here in the US equity market over 2022. That being said, we're going to probably see some volatility along with it as well. And it's really on the back of many of the issues that you've brought up and that have been being discussed on the show. So in terms of earnings, for example, you do have a tougher year overall. On an absolute level, those earnings numbers are expected to come in on a fairly robust basis, but not at the same levels that we saw in 2021.

So you've got a little bit of a challenge with the decel in those earnings growth rates. And inflation remains an open question. Our base case is that those prices pay continue to come down through the year, again, as we continue to hopefully see some of that supply side normalization as well as the labor market continuing to come back on force, we'll see those inflation prints come down. But again, it's a very fluid situation.

And one of the things that we're watching very carefully is how much those rising prices get baked into future expectations of consumers. Because to the extent they do, that, again, makes inflation more of a sticky process going forward.

AKIKO FUJITA: Yeah, the forecast and outlook certainly going to be something a lot of investors are going to be watching during earnings season. We've got the big banks reporting later this week. And you know, the expectation here is that with the Fed hiking rates, the higher rate environment will be beneficial to some of those financials. How are you positioning yourself ahead of that?

LISA ERICKSON: Well, our view really right now is that there's a broad opportunity set in terms of the sectors that are attractive. To your point, Akiko, we do see some of these economically sensitive and cyclical sectors as interesting. And it's really on the back, again, of the fact that earnings growth, while decelerating is still expected to remain at solid levels, we continue to have an elongated reopening that should really bolster some of those areas.

But at the same time, we still see a case for some of the secular growth names. Many of the trends to continued online usage, to increase demand for productivity enhancing technology, moves towards artificial intelligence should continue to bolster those secular growth names. So really, we've got both sides of the coin that are interesting for this year.

ZACK GUZMAN: Yeah. One of the other ones that we maybe should have talked about a bit more in 2021, as the performance speaks for itself, was energy. And we are seeing kind of oil prices continue to hold strong here in the first few weeks of 2022. I mean, when you look at energy and some of this being, I guess, a midterm year-- very interested to see what kind of happens if Build Back Better doesn't come through, some of those climate changes don't come through-- how are you expecting to play maybe that sector here? And what should people be watching there?

LISA ERICKSON: We do feel positively on energy. And again, as part of that economically sensitive story, it should continue to be bolstered by the fact that we've got ongoing demand. And again, the hope is as things continue to normalize with the pandemic, that the ability to get out and continue to utilize services and be out about with more transport should, again, help that energy demand. So we do view it as a positive outlook for this year and, again, bolstered by the fact that you've also got some opportunities on the secular growth side as well.

ZACK GUZMAN: All right, appreciate all the things to think about there. Lisa Erickson, US Bank Senior Vice President and Public Markets Group Co-Head thanks again for the time.