Kristina Hooper, Chief Global Market Strategist at Invesco, discusses the biggest takeaways from Bank of America's earnings and highlights what investors should watch as BigTech reports this week. 

Opening Bell

Bank of America Q1 Profit Tops Estimates as Lender Releases Reserves for Soured Loans

the lower open that we're seeing this morning does come after it was a rough week on Wall Street with stocks closing in the red on thursday, of course they were closed on friday florida holiday, good friday. The stuff also comes as investors are anticipating this week, a major week of earnings. We've got retail brands like lululemon and J and J. Kind of reporting. Also tech companies like Tesla, IBM and Netflix all set to report their Q one results in the coming days. Let's take into that a little bit more and get some early morning inside as well with our markets Guest Kristina hooper, chief global market strategist at Invesco Christina, as I mentioned there, this is a big week for earnings, obviously last week kind of kicked off this this quarter for earnings, but I want to dig into first kind of earnings that came out this morning, America B. Of A exceeding analyst estimates, aided by better than expected kind of credit quality amongst its borrowers. What were some of your biggest takeaways from the earnings report that came out with B. Of a. But also that in context with the bank earnings that we got last week, what's your kind of broader outlook on the financial sector? Well, clearly the consumer is still strong. And so even though we're seeing reading suggesting that sentiment is very negative among consumers, um the situation is good, their finances are good. We saw deposits increase, of course assets under management group. Um And so that suggests to me that while uh consumers are concerned about inflation that's weighing on their outlook. um they're still in very good shape in terms of financial wellness and that really is borne out in what they're doing. Um Certainly we've seen a shift from good spending, two services spending, um We've seen household savings in general going down. Um But the consumer is in good shape and I think that makes sense given how tight the labor market is, and that's actually one thing we heard this morning in the B. Of A earnings is that it is difficult to source labor. Um That continues to be a challenge and I think we're going to hear that from more C. E. O. S in a wide variety of industries as we get into earning season deeper, get deeper into earnings season when you look at B. Of A. And certainly the big banks that reported last week, there is the kind of consensus and the theme, but for the most part they did kind of beat on on Q. One earnings, however you look at the broader financial sector and it's still down and it's been down really since the start of this year, the end of last year, I've kind of akin matter or kind of attributed that to the reality that while this interest rate environment certainly is one that banks are poised to benefit from, you look at the 10 and the two and those are not as steep as you would like to see. It certainly doesn't seem like they're steepening fast enough. Um, and there's, there's a concern with that in terms of what it means for recession, which would then kind of put pressure on the potential tailwinds of a higher interest rate environment. But I'm curious, you know, to you, what do you, what do you think that that relates to in terms of the financial sector, kind of being down amid what is poised to be a decent environment, you know, for them, what are investors reading or not seeing essentially, you know, when they're looking at the bank sector? Well, I think in general, investors aren't excited enough about financials. The conventional wisdom is that financials do do well in an environment of rising rates that we see an improvement in net interest income that tends to be positive. But there's always the risk that as rates are increased, um, there is the potential for a recession, as you pointed out. And of course the more aggressive the Fed gets, the more the recession risk grows. And I think that is reflected to a certain extent in the hesitation over financials this week, Outside of financials, the more kind of, you know, facing companies, you think of tech companies, they're gonna be reporting. I'm thinking names like netflix, Text. Tesla, even IBM are gonna be some of the big names this week, what are you gonna be looking out for for these companies specifically. So what I look most for is what they're saying on the earnings calls in terms of conditions, in terms of concerns and risks for the future. For example, difficulty sourcing labor, that is going to have an impact on margins if you have to pay more for labor, especially if you're a labor intensive company. Also, just hearing from retailers about foot traffic is very helpful. Now what we're seeing from the metrics, if we look at the google mobility data, what we're seeing is that foot traffic and restaurants and retail establishments is down only about 5% from pre pandemic levels. Um but there are certainly very significant differences among retailers. Some are benefiting, some aren't and so to hear specifics that's going to be very, very valuable on these earnings calls, As you mentioned there a moment ago in terms of pressures that these companies could feel, could feel one of them obviously being you know, wage um with that in mind, do you expect kind of, you know, overall growth to come in below expectations above expectations. And with that then what do you see, you know, the second half of this year as we go into Q3 and Q4 of earnings? Well, I think earnings will probably come in around expectations. There will always be outliers that positively surprised thus far we've seen more positive surprise than negative. Um but I think we'll come in around expectations. I think what's going to be far more important is um expectations for the future, especially those companies that are impacted by supply chain disruptions. Russia's have in Russia's invasion of Ukraine has certainly exacerbated the disruptions in some supply chains. So we want to follow that closely. Um, this is going to be a year in which they're going to be some headwinds for earnings. I think some companies will benefit, some won't. Um but I look to technology is an area where we'll continue to see pretty wide profit margins, which is good in an environment of, of rising costs. You brought up something that I was gonna kind of pointed to this question here, obviously it just feels like we can't do much on the inflation picture, but one of the areas that people are looking to a supply chains right, what sectors do you think are gonna be indicators of, of an easing potential supply chain? Well, there are certainly differences amongst sectors. Uh, I think in particular, autos are going to continue to come under very significant pressure. Not only do we have a continued semiconductor shortage issues, but Russia's invasion of Ukraine has also impacted other inputs to the auto supply chain. Like for example, palladium, Russia is the largest exporter of palladium and of course that's an important part of the auto supply chain. So that is going to continue to be under pressure. Other supply chains will likely ease, especially as covid restrictions and lockdowns ease in china. Um which I'm certainly no epidemiologist, but I would anticipate um, that's starting to happen soon. Uh probably by the end of the second quarter. So I think one size does not fit all. When we talk about supply chains, we're just gonna have to follow individual industries very closely. Okay. I mentioned supply chain because obviously that that's one of the things, probably the most central thing that's leading to these higher inflationary numbers that we're getting across kind of, you know, different sectors. But but with that inflation obviously and multi decade hides in 40 year highs. Do you think there's any signal right now that that it could be peeking any kind of bright spots in the future especially as we hopefully see kind of supply chains smooth out. Well I should say that some great minds think that it peaked in March. I suspect we haven't peaked yet, but I would anticipate peaking sometime in the middle of 2022. I think though the bigger issue is how much it moderates after it peaks and I think it stays at elevated levels. A lot of these issues remain Russia. The Russia Ukraine conflict has not ended. Um We haven't yet seen the end of covid lockdowns in china. So I think inflationary pressures persist. I think the situation in china certainly gets better soon. Um but we don't know about Russia Ukraine. Um We don't know about labor shortages. So I think we end the year with cp I add or a little above 5%. so that that continues to be a A significant ways, apart from the Fed's inflation target of about 2%. Yeah, certainly better, though, than where we are at right now by by a decent amount. Thank you so much. Kristina Hooper, chief global market strategist at Invesco.