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Can earnings lift stocks? We'll see: Strategist

The three major U.S. stock indexes scored another week of gains after key bank earnings, but whether those results will extend the rally is up for debate.

"In spite of the fact we seem to be in a bit of a rally here, we think it is a head fake, and so we would look for better entry opportunities," Lori Heinel, State Street Global Advisors' chief portfolio strategist, told CNBC's "Power Lunch" on Friday.

The Dow Jones industrial average, the S&P 500 and the Nasdaq composite are all gained more than 1.5 percent for the week and have added at least 10 percent in the last three months.

A slew of financial firms, including Wells Fargo, Citigroup and JPMorgan Chase, all reported quarterly results this week. Next week will be tech's turn, as major players Microsoft, IBM and Yahoo get ready to post their results.


For Lamar Villere, portfolio manager of Villere & Co., that kind of opportunity comes in the form of smaller companies with better growth opportunities, what he calls small-cap blue chip companies. These companies don't carry the same currency and interest rate risks.

"Investors chased after some of the dividend yield you see in large caps," Villere said. "We focused on our small-cap companies that can dominate their niche."

Villere pointed to Epiq Systems, a Kansas City-based technology provider for the legal profession.

While Villere looks to small-cap blue chip companies, fearing the impact of the global economy on the U.S. markets, Heinel is looking to cash. In light of recent retail sales, inflation numbers, consumer expectation and consumer sentiments, Heinel said she is currently holding "dry powder," or cash reserves. She's predicting low-single digit gains in 2016.

Heinel is also looking toward financials, which had been on the rise this week. Believing the Fed won't raise rates anytime soon, Heinel thinks some sectors, like real estate investment trusts, will continue to benefit from low- interest rates.

"You got some banks that have been so beaten down that the ability for them to generate a little bit of earnings is quite positive," said Heinel, noting recent bank earnings.

Heinel said the low-yield environment is working in her favor.

"It's not just yields, but just the fact that they are so attractive on a valuation basis, price-to-book or whatnot, that there is very little downside," Heinel said.

Disclosure: Villere & Co. is a 14 percent shareholder in Epiq Systems.