Tech earnings will test the market's strength: Strategist

Mounting geopolitical pressures and stocks not reacting as positively to earnings results as Wall Street had hoped, concerns over the strength of the market are beginning to creep in. Big names in tech — including Microsoft (MSFT) and Amazon (AMZN) will report their latest quarterly earnings in the coming weeks — have helped lead the recent rally seen in the market.

State Street Global Markets Head of Equity Research Marija Veitmane joins Yahoo Finance to discuss what will test the mettle of markets the most, including geopolitical woes and Big Tech earnings.

"Next week we have a big tech week which is hopefully one part of the market that consensus is very constructive for and that is part of the market that maybe is less affected by [interest] rate hikes, companies are larger, balance sheets are stronger. So that is potentially something [that] can kind of put floor under stocks," Veitmane explains.

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

This post was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: Great to see you this morning, and thanks so much for taking some time, Marija. First and foremost, just want to get your reaction to some of the market nervousness that we were just breaking down a moment ago that's played out over the course of this week.

MARIJA VEITMANE: Yes, I think market is very much concerned with this idea that all of a sudden, we are getting a little-- actually, let me take a step back. Market was very focused on this soft landing idea, data softening, inflation coming down, we're going to get cuts, but earnings are fine. So that was the major story. And more and more, we're getting the data getting data being a bit stronger, inflation surprises on our upside, and we are repricing Fed cutting expectations, so that's not great for risk assets.

[INTERPOSING VOICES]

SEANA SMITH: Marija, when it comes to some of that risk off sentiment that we have seen, though, play out in the markets this week, is that something that you see continuing into next week? Or will we see maybe earnings that have come in better than expected reassure some of the skeptics out there?

MARIJA VEITMANE: I think I'm very much looking at earnings, and particularly next week we have a big tech week, which is hopefully one part of the market that consensus is very constructive on, that part of the market that may be less affected by rate hikes as companies are larger, balance sheets are stronger. So that's potentially something where you can put a floor under the stocks.

BRAD SMITH: Have we started to hear a firm theme emerge over this earnings season, from your perspective?

MARIJA VEITMANE: So far, we mostly heard from banks, and the stories are actually, I would say, probably less encouraging. So we're hearing banks are, quite a lot of them, beat the expectations, but it's very much in trading revenues, in wealth management, asset under management stories are quite strong as markets are strong. But under the surface, we are hearing about things like loan growth is slowing, we're hearing the cost of deposits, cost of business is rising. So I think for banks, it's OK, but read across the broader economy may be a little bit more challenging.

SEANA SMITH: So where are you seeing investment opportunity? What should investors be doing adjustments, making to their portfolio in order to better position themselves for what sounds like some uncertainty ahead?

MARIJA VEITMANE: Unfortunately, there's probably less to do for investors. So we expect to see the big trend of large caps outperforming small caps, so that's probably our key focus, key differentiating factor between sectors and factors, is that larger companies and companies with better margins can withstand this downturn a little bit better. And that's what investors have been doing already, so technology, energy stocks, mega-caps, that's doing well, that's where big positions are. Companies with more lower margins are really struggling, your staples, your health care stocks, they're under a lot of pressure. And that's likely to continue, in our opinion.

BRAD SMITH: Just additionally here on one asset, gold, is there still legs to the gold spike that we've seen?

MARIJA VEITMANE: Unfortunately, we're seeing no end of geopolitical tensions, and I suspect that that's supporting this trade. So sadly, probably more legs there.

SEANA SMITH: All right, Marija Veitmane, thanks so much for joining us here at Yahoo Finance. Great to have you, State Street Global Markets Head of Equity Research.