Economic data is a chief motivator for the Federal Reserve's monetary policy as markets react to changing narratives around 2024 interest rate cuts. Tech selloffs encouraged by lagging Magnificent Seven components put a damper on stocks' recent run higher. Have earnings now become more important to markets than Fed officials' consensus on rate cuts?

Satori Fund Founder and Senior Portfolio Manager Dan Niles joins Yahoo Finance to break down the stock market's dichotomy around these two core drivers.

"If the economy is strong at the end of the day there's only two things that determine stock prices, right? it's earnings and the multiple you put on them," Nile says. And so if the earnings fold, because the economy is strong, even if rates don't get cut by very much this year, I think the market can do okay."

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 Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Fed Chair Jerome Powell's testimony on Capitol Hill just began mere minutes ago. He is set to update lawmakers and investors on the possibility of interest rate cuts this year. As earnings begin to hold sway over market moves, how much of an impact will data and the Fed's expectations have going forward?

Joining us now, we've got Dan Niles, who is the Satori founder-- Satori Fund founder and senior portfolio manager. Dan, great to have you on here with us this morning. First and foremost, when you think about what the markets are clearly looking to more to really gauge where there should be more bullishness or where trips should be taken off the table, what most notably is sticking out to you about how there's more emphasis placed in different kind of fabrics of what we're seeing take place right now, earnings versus what the Fed is doing?

DAN NILES: Well, I think you bring up a good point. If you look at the last two years, it was really all about the Fed. And what I mean by that is if you look at 2022, you had the fastest rate hikes in history. And the Magnificent Seven that year, on average, were down 46%.

Then you move forward a year to 2023, and the Fed was on hold. People at one point thought there'd be up to seven rate cuts coming this year. And the Magnificent Seven were up 111%, again, even though estimates for some companies like Apple and Tesla actually went down all year last year.

Now, this year, with those rate cut expectations falling from about 7% at their peak to now closer to 3%-- and we'll see if it even becomes 3%. It may be less than that, just given how strong the labor markets are-- earnings are really starting to differentiate all these companies. And so the four of the Magnificent Seven that actually had numbers either hold in Microsoft's case or go up pretty substantially in the case of Amazon, Meta, and Nvidia, those stocks are all up significantly.

Meanwhile, the companies where the estimates have continued to go down, in the case of Apple, Tesla, and Google having some issues with their advertising business, those stocks are all down, and in the case of Tesla, almost down 30%, in the case of Apple, down about 12%. So I think earnings this year is going to be the big differentiator versus what the Fed does because I don't see the Fed doing a whole lot this year.

SEANA SMITH: So, Dan, then rate cuts then maybe not necessary in order for the market's momentum to remain here to the upside?

DAN NILES: Well, I think to some degree, you're exactly right, Seana, because if the economy is strong, at the end of the day, there's only two things that determine stock prices, right? It's earnings and the multiple you put on. And so if the earnings hold because the economy is strong, even if rates don't get cut by very much this year, I think the market can do OK.

It's not going to be up 20% or something, but it can do OK because of that. But I think you're going to see a lot more bifurcation amongst the stocks in the market, where you're not going to be able to have your estimates go down and have the multiple expand because everybody's just bullish about rate cuts coming. So you're really going to have to start to put up the numbers. And that's the good news.

This earnings season, you've seen the companies that actually do well with their earnings and outlooks, those stocks are going up. And the ones that aren't, those stocks are getting crushed. So it's a much healthier environment we're operating in versus one where every utterance by Jay Powell is really what's moving the entire market, and they're all moving together, regardless of what individual fundamentals are.