Market Recap: Friday, February 19

Stocks closed out Friday's session mixed at the end of a choppy week for equity trading. The three major indexes erased earlier gains to end near the flat line, with the S&P 500 slightly lower and the Nasdaq and Dow slightly positive. The S&P 500 logged its first weekly loss in three weeks, drifting lower after a rally to start off February. The index also dropped for four consecutive sessions in its longest losing streak since mid-December. The Nasdaq outperformed against the other two major indexes for the first time this week, as investors over the past several sessions extended a rotation into cyclical stocks and away from some high-growth tech names. Fort Pitt Capital Group’s Dan Eye and Defiance ETFs Co- founder & CIO, Sylvia Jablonski joined Yahoo Finance Live breaks down the details.

Video Transcript

ADAM SHAPIRO: The market's losing steam as we head to the closing bell, which reiterates why if you liked it, then you should have put a ring on it. Let's bring in the guests for us in this hour. And we want to welcome Sylvia Jablonski, Defiance ETFs co-founder and CIO. Also, Dan Eye at Fort Pitt Capital Group. Dan, let me start with you. Market still at record highs, essentially. But it looks like we're going to be flat as we go to the close.

DAN EYE: Yeah, well, thanks for having me. We've certainly gotten off to a very strong start for 2021. So I'm certainly not surprised to see a little bit of consolidation this week. But we've got a pretty positive view on the markets for 2021. And I think those positive expectations are well understood by the markets at this point.

The consumer is very well positioned. A significant amount of enough demand out there, and we expect to see an improving employment picture throughout the year, as well as a significant rebound in corporate earnings. So we think this looks like another positive year for equity markets. But our expectations are certainly a bit constrained, given high equity valuation levels to start the year.

SEANA SMITH: All right, Dan and Sylvia, just hang on tight. We're going to go to our markets reporter Jared Blikre, as we are less than just around a minute from the closing bell. Jared, what are you watching here into the close?

JARED BLIKRE: Well, let's take a look at the YFi Interactive. We got the Russell still holding over 2% for the week and end up a little bit down, but it's been choppy for most of the other indices. You can see the Dow is exactly unchanged right now. It's going to finish probably up just a few points in the green for the week.

Let's take a look inside the NASDAQ 100, where we've seen a little bit of weakness. And I'm going to change this to a five-day view. You can see Apple's off 4%. It kind of broke down a little bit as a technical formation. Tesla down nearly 4%, Facebook off 3%.

Looking at the sector action for the week, energy the biggest winner by far, up 5%. The storm, the winter polar vortex-- excuse me, vortex-- really a big driver of some of those gains. But oil has been a huge tailwind for the energy sector over the last three months. Financials also in the green, up 4%. Materials and industrial rounding out the outperformers.

Utilities to the downside. That's the biggest laggard not surprisingly, as we're seeing some big gains in the Treasury market, especially the 10-year. We're going to talk about that in a little bit. But here is the closing bell on Wall Street as we head into the final day and options expiration.

[BELL]

SEANA SMITH: And that does it for today and the week. We have a mixed picture here as we close out the final few trades. Dow and S&P are up-- oh, actually, it looks like Dow is going to end barely positive, just around the flatline. S&P off just around 2/10 of a percent. NASDAQ holding on to gains. We should point out the Dow was up just around 150 points earlier today, so giving back nearly every single gain that we saw earlier.

For the week, though, a bit of a different picture. S&P off just around a half of a percent. NASDAQ off about 1 and 1/2%. Jared was just going through this sector action, that we've seen energy by far the leader, up 5% for the week. And then we've seen the cyclical trade back in favor here amongst investors, where we have materials, industrials, financials among the leaders there. All three of those sectors up just around 1 and 1/2%.

We want to bring back in Dan Eye and Sylvia Jablonski. Sylvia, let me just go to you first. Just where we're trading right now, we're not too far from those record levels. Is there any hesitation just at the current valuations that we're looking at?

SYLVIA JABLONSKI: I don't have a lot of hesitation right now. I'll echo some of what Dan spoke about before, I think that, you know, the market is in pretty good shape. We have record liquidity pumped into the market and probably more to come if, you know, the $1.9 trillion or some version of that passes. COVID vaccines are on the up, and COVID infections are on the down. Earnings just absolutely have crushed it so far. 80% of the names out there have reported, and about 80% of those that reported have beat by 15% or more.

I think that the reopening trade hasn't really started yet. I think a little bit of it's priced in. But in terms of, like, services and small caps, airlines, casinos, hotels, things like that, I think we'll see some positive momentum. And for the names that are down this week, like, the major FAANG names that you just went through, I think they're buying on the dips opportunity. There's still quality names with tons of cash on the balance sheet. And I just think that, again, like, the incoming liquidity and the passing of COVID should add momentum to the market, regardless of where we are on valuations.

ADAM SHAPIRO: Sylvia, the incoming liquidity, though, let's talk about SPACs because 45 plus billion in just the first two months of the year. Up, up, and away. And yet many of these SPACs haven't even named the companies they're going to try to acquire. Sounds a little frothy to me that a lot of people are about to get burned. What do you think?

SYLVIA JABLONSKI: You know, I have to disagree. I love the SPAC space. And I can definitely recognize the concern. Last year, we had 250 stacks and $83 billion of proceeds. This year, we're six weeks in, and we've had half of that come out. But I think what's really interesting about the SPACs that are coming out is that the most reputable names, which are sort of the highest market cap, you know, backed by the well-known founders, whether it's Shaq, Bill Ackman, who's, by the way, made $1.9 billion in proceeds from his SPACs, [INAUDIBLE], the social capital SPACs, they're doing quite well, and they have done some acquisitions.

So Virgin Galactic is up triple digits. You know, Churchill is up on the Lucid rumor. Draft Kings did quite well when it came out. So I think that you're getting this access to a space that covers kind of, like, every sector, but most of the names have something to do with disruption and technology, whether it's direct metals, 3D metal printing, or electric vehicles or green energy. I just think that these are awesome IPO opportunities.

Totally agree with you that there are a lot, and not all of them are going to work. But I think if you look at the highest market cap names or even look at an ETF that will mitigate the risk to that one single failure exposure, you get a really good potential for performance there.

SEANA SMITH: Dan, how about what's going on in the bond market? Yields are up again this week. Their biggest weekly gain is just around six weeks. When we take a look at what's happening in the 10-year yield and also the 30-year yield, should we be worried about inflation? How are you reading that?

DAN EYE: So we are keeping a close eye on inflation. And I think right now, you're not really seeing evidence of high inflation levels in CPI or core CPI data. But you certainly are seeing it in the base metals. You're seeing it in housing prices and lumber prices.

And I think the fixed income market is starting to say, you know, we're looking at a regime change into a higher growth environment for 2021. And we need to finance very high budget deficits from 2020, and obviously, for 2021 as well. So we wouldn't be surprised to see a continuation of the rise in interest rates. And we've also been keeping a very close eye on the weakness in the US dollar that really started back in March of 2020 and certainly could continue.

ADAM SHAPIRO: When it comes to equities, though, you like to find those with-- might be trading cheap to the market. And one of them you pointed out is Bristol-Myers. What did you find attractive about them?

DAN EYE: Yeah, very good question, Adam. And the stock is just way too cheap in our view. It's trading at almost a 65% valuation discount to the S&P 500. This is a company that's posting strong top and bottom line growth, which is expected to continue. We think that Bristol-Myers is going to generate almost 50% of their entire market cap value in free cash flow over the next three years.

They're executing well. They're realizing synergies from their Celgene acquisition. They're deleveraging their balance sheet. And the deep discount's really driven by some concern about generic competition. But that's four or five years down the road. And we think that their pipeline is very well positioned to more than offset that loss of revenue from generic competition. So we really like the name.

SEANA SMITH: Jared, to bring you back into the conversation, I know you're closely looking at the bond market here as we turn our focus to next week. And there's some warning signs, actually, that you're noticing as of right now. What's going on?

JARED BLIKRE: Potentially, and let's go straight to the charts. And this is the 10-year T-note yield. This is over two months, but over the last week, look at what we've done here up, 14 basis points. That is a big move. And this is what I tweeted earlier. This is what I'm going to be watching into next week.

First of all, I want to pull up this chart. This is the last three days inside the 10-year T-note yield because we have real yields here climbing on the left and breakevens going down, plunging on the right. And breakevens are what signal inflation expectations. Real yields are what are signaling growth. Real yield's still negative, negative 80 basis points.

But here is my point here. 10-year real yields are surging. We've got breakevens dropping. And this is all on hot economic data. We've got retail sales coming in way above expectations, hot producer price inflation. That's what Dan was just talking about. Market PMI is strong, building permits, import-export prices. Then you add it all up. We've got a lot of volatility in the bond markets. So the move index, which is like the VIX of bonds, that is picking up.

So my takeaway here is maybe good news is bad news, and maybe the market is pricing in a potential tapering. The Fed having to deal with inflation in the back half of the year, as we've been talking about, even though the Fed doesn't see that happening just yet, guys.

ADAM SHAPIRO: All right, Jared, we appreciate that. Dan Eye, Fort Pitt Capital Group, thank you for being here. Sylvia Jablonski, Defiance ETFs co-founder and CIO, it's good to have you here as well.