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Why a stimulus package won't affect the Federal Reserve System: Strategist

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Rebecca Felton, RiverFront Sr. Market Strategist & Portfolio Manager joins Yahoo Finance Live to discuss how markets are faring after Friday’s jobs report and the chaos at the U.S. Capitol.

Video Transcript

ZACK GUZMAN: Interest rates have been in focus this week as we got that-- you could call it a surprise perhaps to some in terms of the Georgia Senate runoff results there, now giving Democrats control of the Senate when Biden comes into office. We saw banks reacting to that news, among them Goldman Sachs upping their expectations in terms of when the Fed might lift off their near zero interest rates and now moving that up to 2024 instead of prior forecasts of early 2025. So what should investors be bracing for when those changes come through, if they are indeed coming through sooner rather than later. Here to break that down with us is Rebecca Felton, RiverFront senior market strategist and portfolio manager. And, Rebecca, it's good to be chatting with you again here. I mean, the expectation here seems to be that it will be sooner rather than later. But the Fed, again, reiterated just, you know, recently that they're going to be sticking with zero interest rates at least until 2023. So how should we be looking at this?

REBECCA FELTON: Well, thank you for having me. And I think, you know, obviously, when you start talking about 2023, 2024, that's quite a ways in the future and we would expect to see them, you know, taper asset purchases before they actually start to move rates higher. Obviously, we've seen the 10-year go back above one, but we don't feel that it's cause for concern. And in terms of how we are looking at total return, and portfolio positioning, and all, we still expect dividends to be higher than yields so we are still leaning into equities over fixed income.

AKIKO FUJITA: Yeah, well, regardless of what we're likely to see from the Fed, that stimulus, the fiscal side that Jay Powell has been pleading for finally on the table with at least a $900 billion package. And there is expectation now with Democrats regaining control of Congress of additional stimulus as well. How do you think that shifts the outlook for the central bank?

REBECCA FELTON: I don't know. We don't necessarily think that it shifts the outlook much at all because these stimulus packages have sort of been on the horizon, particularly in the advent of the Biden administration coming in. We're hearing more and more chatter about the likelihood for a total of $2,000 in stimulus checks. So that would be an additional $1,400. And then after that, in that March, April period, there's expectations that you would see a larger stimulus package that would target some of these areas that have been so hard hit. You know, in the jobs report this morning, the leisure/restaurant area, you know, lost over 300,000 jobs in December alone and it's expected that that stimulus package would address areas such as that and, of course, infrastructure, health care, education, and those types of things. So there's a lot of hope as it relates to what the stimulus packages can still accomplish as we move through the first quarter.

ZACK GUZMAN: Yeah, as you said, even though it's a ways away, obviously, the market always interested to see the latest and Fed thinking there. We got the minutes earlier this week, kind of, highlighting the fact that they're going to want to give as much notice as possible. Of course, we've had experience watching the reaction here to tapering tantrums. When we think about it, what might be the benefit here if Jerome Powell and Janet Yellen are able to, kind of, I guess work in lockstep around this because that's something that might be overlooked in all of this. What are your expectations about that maybe going better than some people might be expecting?

REBECCA FELTON: Well, I don't necessarily have an insight as to what they might do to work together other than what, you know, Mr. Powell has already communicated in terms of willing to do whatever it takes pretty much for as long as it takes. But we do expect that whatever they communicate, they're going to be very measured because they do know that their tone means a lot to these markets and can be very unsettling. So we would expect the calm, steady tone going ahead with whatever they proceed with.

AKIKO FUJITA: And, Rebecca, while we're focused on US equities here, certainly you're looking abroad as well for some opportunities. If you look at something like the eurozone, it feels like the vaccination-- the rate of that is still behind where the US is, which some would interpret is maybe a little slower in the bounce back. What are you seeing in the market that you think is particularly attractive? And, also, I wonder if you can speak to the other call you've made on international, which is Japan, also seeing a significant spike in cases right now?

REBECCA FELTON: Well, at the end of the day, it isn't-- you know, it's unfortunate and it's regrettable that these cases are spiking and it's been sort of well telegraphed in that post-Thanksgiving/Christmas period we could see that globally. But, encouragingly, on the fundamental and economic side, we have been seeing better numbers out of the eurozone, obviously helped us stimulus from the ECB. As well, you're seeing better news coming out of Japan. So we have neutralized positions and developed international specifically targeting Europe, Germany, and Japan. And we've also added back some emerging markets because, obviously, those equities are benefiting from the weakness in the dollar. We've seen that play out, not just in the equities, but also in the commodity space.

AKIKO FUJITA: Rebecca Felton, RiverFront senior market strategist and portfolio manager, appreciate you joining us today.

REBECCA FELTON: Thank you so much.