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We're, 'very likely to see a very strong earnings season': Strategist

Invesco Global Market Strategist Brian Levitt joined Yahoo Finance Live to break down what investors can expect from this upcoming earnings season and how it'll impact the broader market.

Video Transcript

ADAM SHAPIRO: About 15 minutes to the closing bell. Markets are down, but not dramatically. Let's bring into the stream Brian Levitt, Invesco Global Market Strategist, to talk about some of the things that Jay Powell said in that "60 Minutes" interview.

He was asked a question that was essentially, do you think we're in a bubble, an asset bubble when it comes to equities? And in classic Fed fashion he said, well, we don't really, you know, weigh in on asset bubbles. We want to make sure everybody is well capitalized. What do you think? Is this market headed for a big, or at least a 10%, correction quickly soon?

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BRIAN LEVITT: Corrections don't just come out of nowhere. Corrections are usually driven by policy uncertainty. And so you know, everybody's watching the inflation numbers. It's not a matter of whether Jay Powell thinks we're in a bubble or not. It's whether the inflation picture starts to materialize in a way that has investors believing that the Fed may be back in place sooner than what Powell is currently suggesting.

I don't think that's the case. I think the Fed is true to their word that they are going to be very accommodative until we see the economy move far closer to full employment. But that will be the story. Correction will be dependent on whether investors believe that the inflation story is really heating up.

SEANA SMITH: Hey, Brian. What do you make of the rest kind of that the market is taking today? We have the Dow off just around 41 points. S&P isn't moving a heck of a lot. The NASDAQ down slightly. Are you expecting this type of activity as we lead up to the start of earnings later this week?

BRIAN LEVITT: I don't think there's anything all that strange about today. I mean, remember, this is a market that has really done very well this year, and you know, at the end of the week was sitting at all-time highs. Just to have a little bit of a pause in markets is fine.

You also have interest rates up a bit today again as there's more expectations of better economic activity and some inflation pressures. So you know, I don't make too much of it. I think the bigger thing to point out today is that the NASDAQ is underperforming a bit, which certainly wasn't the case last week.

You had seen investors give up-- not give up, but suggest that maybe value had had a good run, and start to shift back to growth. I think that value cycle probably has some legs here. But again, I'd find it more interesting that NASDAQ is underperforming a bit rather than the market just taking a day off.

ADAM SHAPIRO: So Brian, when you hear Jay Powell talking about the economy at an inflection point, what is the inflection? Is it that as we go into this first-quarter earnings season, we learn that, you know, earnings really are going to drive multiples higher as we look at stock prices, and that what we're witnessing today isn't overpriced?

BRIAN LEVITT: Yeah, I mean, you are very likely to see a very strong earnings season as the economy is improved. And so valuations will start to look a bit better. I think investors may have some of their concerns eased, as is often the case as you move through a second year of a market cycle.

But when Jay Powell was talking about an inflection point, I mean, look, we had a disastrous economic outcome. And we've been moving out of it. And now what you've got is 20% of the country vaccinated, you've got an awful lot of fiscal support, and you've got jobs coming back online.

And so when he says inflection point it's, does all of this pent-up demand and all of this income replacement find its way into the economy around the same time? Or instead, are we still grappling with the coronavirus? Are we still dealing with the fact that 80% of Americans are not vaccinated?

And so is it more of the same, where we're still struggling to reopen and struggling to get back to a more normalized economic environment? Or is it what I said earlier, that all of this demand finds its way into the economy around a similar time and creates outsized growth and perhaps some inflation concerns?

SEANA SMITH: Hey, Brian, we have Biden today talking infrastructure with a group of bipartisan lawmakers. From your perspective, how is the market looking at the prospect of higher taxes, which we could see as a result of that infrastructure plan?

BRIAN LEVITT: Look, the market clearly knows that it's potentially on the horizon. The reality is, you know, most of the tax rates-- if you look at the corporate tax rate, it's not going back to where it was at the end of the Obama administration. And if you look into the marginal income tax rate, it's only going back to where we were. So I don't think that the market is viewing this as something where markets can't continue to go up. We saw markets go up with rates at higher levels where they were in the Obama years.

But the other thing is we still need to see what this ultimately looks like and what can be pushed through the legislative branch of government. So it's not entirely clear what the specifics are going to be on it. We can all sit here and read through what the Biden administration would like to see, but obviously it will come down to a few select senators to see what is reasonable.

To me, what is most interesting and what investors need to be focused on is, where are we in the cycle? What's the direction of the economy? And what is monetary policy? And so a tax increase, while it may create some volatility and concerns that the economy may slow, in my opinion it's not going to change where we are in the economic cycle and is unlikely to change monetary policy.

ADAM SHAPIRO: Brian Levitt is Invesco Global Market Strategist. Thank you for joining us. We'll be right back.