Principal Asset Management Chief Global Strategist Seema Shah joins Yahoo Finance Live to discuss market outlooks as earnings season begins.

Even after outperforming in 2023, Shah says Magnificent Seven tech stocks may not have "as strong" a 2024 but she doesn't expect investors to "reduce exposure significantly" given tailwinds like AI and the Federal Reserve's interest rate outlook.

Shah foresees a "fairly positive year" overall but with margin compression. She notes that first-quarter earnings could be "a volatile quarter" amid consumer slowdowns, Fed policy moves, and stretched valuations.

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

Editor's note: This article was written by Angel Smith.

Video Transcript

SEANA SMITH: Let's take a look at stocks here at the open because a bit of a muted open here for the market. The Dow falling back into negative territory, below 38,000 after closing above that level for the first time ever on Monday.

Earnings season is now in full swing. Are these quarterly results-- will it be enough to signal to the market that maybe this rally that we've seen has legs? For more on that, we want to bring in Seema Shah, Principal Asset Management Chief Global Strategist is here. And Seema, when you take a look at the recent rally that we've seen, a lot of that driven by some of the chip stocks, some of the tech stocks that have been under pressure at the start of the year.

Do you think we still see some more movement here to the upside?

SEEMA SHAH: All right. Great to be on with you. So look, clearly, tech especially, the Magnificent Seven, they performed exceptionally well last year. And there are, of course, questions coming into the year of whether or not that can be sustained, especially, when you look at the valuations, which are very stretched.

Now, from our perspective, you probably won't see a similar year or as strong a year this year, as what we saw last year for those tech companies. But there are some real fundamental drivers behind them, which we don't think are going to be really put to bed yet. So, of course, we have the AI saga, which continues to drive expectations and productivity. So that should sustain earnings going forward and to keep tech performing well.

And the other thing is, as long as there are concerns about the economic cycle, what the Fed is going to do next, you will still see investors looking for big balance sheets, big brands, which is what a lot of those Magnificent Seven really bring to the table. So we are expecting a decent performance this year, not as strong as last year, but certainly not something that we would start to reduce exposure significantly.

BRAD SMITH: Seema, is there one core theme that could emerge this earnings season that continues to power this market towards more all-time highs?

SEEMA SHAH: So at the end of last earnings season, one of the things that everyone was watching out for was evidence of consumer slowdown. It's been talked about for so long. This expectations that consumer spending would eventually start to cool down. And you did see a number of CEOs really pointing to that concern during their earnings season. So this time, I think a lot of questions are going to be pointed at that. Are they seeing that long awaited consumer slowdown?

But more importantly, what's happening with margins? Because for this year, although, we're expecting a fairly positive year, we are expecting some margin compression. So some of those pressures coming through. And so from our perspective, actually Q1 could be a bit of a volatile quarter. You could see maybe the market pulling back a little bit, as they start to question, of course, what the Fed is going to do. But actually how strong earnings are. And can they really justify the very stretched valuations that we've had coming into this year?