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Market rotation doesn't mean 'impending doom' for economy, strategist says

Investors may have moved into more defensive names this week, but this isn't necessarily a warning signal on the economy, strategist Liz Ann Sonders told CNBC on Friday.

Bonds and bond-proxy stocks like utilities and telecom did well, while the market rally took a pause on Friday.

Sonders believes it is simply a rotation, some of which is reflected by falling correlations. In other words, stocks and other assets are beginning to move in opposite directions after trading in lockstep.

And that benefits diversification and active management, she explained.

"I wouldn't yet suggest it signals sort of impending doom for the economy because of that defensive nature," the chief investment strategist for Charles Schwab said in an interview with "Power Lunch."

In fact, Sonders thinks this still an ongoing, secular bull market. Her advice — don't sell in anticipation of a pullback.

"I would be more of a buyer on a pullback," she said. "The bull market lives on."

Equities have moved higher since President Donald Trump's victory, with investors anticipating tax cuts, deregulation and infrastructure spending that they think will boost the economy.

However, Sonders said there has also been a turn in the economic data and earnings that have moved back into positive territory.

"The fundamentals were already there to support the market. The problem now of course … is that the expectations bar has been set high."

And the big driver of earnings has been the turn in the energy sector, and that will soon fade as a factor in terms of year over year comps, she explained.

"You are going to need some stronger top line growth looking out beyond this turn from negative to positive in earnings because valuation is stretched enough that I think earnings need to do more of the heavy lifting," Sonders noted.

"But I think we're in decent shape in terms of earnings and the economy. I think the fiscal stimulus would be additive to that."

Noah Blackstein, portfolio manager at Dynamic Funds, also believes earnings are going to be the key driver for stocks.

The recent uptick in earnings has helped close the valuation gap, he explained.

And now that "everything is sort of kind of fairly valued across the board, it's going to be individual companies' earnings reports that will drive individual stocks probably for the rest of the year and news out of Washington in terms of living up to the promises of the election," he told "Power Lunch."

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