Market Recap: Thursday, February 25

Stocks traded lower, and tech shares sold off, as a rapid rise in Treasury yields spooked equity investors. All three major indexes fell, and the Nasdaq underperformed with a drop of 3.5% for its worst session since October as tech stocks renewed their declines. The S&P 500 sank by 2.5%. The Dow traded lower by more than 1.5%, after the index reached a record closing high a day earlier as cyclical and value stocks maintained their leadership positions. Stifel CIO Michael O’Keeffe and President and Managing Director at The Wealth Alliance Eric Diton joined Yahoo Finance to discuss.

Video Transcript

- Just over three minutes to the closing bell. Let's bring into the stream Michael O'Keeffe. He's the CIO at Stifel. Also Eric Diton, president and managing director of the Wealth Alliance. Good to have you both here. So we're watching the sell-off. Is it enough-- let me start with you, Eric-- to just blame this on fear? And the fact that we're watching yields, for instance, on the 10-year go above 1.5%?

ERIC DITON: Don't fear rising rates. The last sixteen rising rate environments, the markets rallied in 13 of those environments. So rising rates are simply reflecting the fact that the economy is recovering, vaccinations are working. This is good news. And quite frankly 1/2 a percent on a 10-year Treasury was ridiculous. It was a joke, and 1 and 1/2 is much more realistic.

- All right, Eric and Michael, hold on one second. We want to get to our markets reporter, Jared Blikre, here for a closer look at some of the big movers, some of the big decliners here into the close. Jared.

JARED BLIKRE: Well, we're seeing losses accelerate. And let's take a look at the charts here. We've got the NASDAQ down over 3%, the Russell 2000 down nearly 4%. Let's take a look at the NASDAQ here. So this is a five-day look. We are just about touching those lows we saw from Tuesday. Very important to see where exactly we finish the day here. S&P 500 down a bit less, over 2%. Dow off the least, that's down just over 1 and 1/2%.

But we were just taking a look at some of the big losers in the NASDAQ 100. Lots of dark red there. You can see Apple, Amazon, Facebook, Alphabet all down more than 3%. Some of the biggest losses are being concentrated in the chip space. That's after Nvidia reported a disappointing outlook on its data center after the close yesterday. You can see that stock is down about 8%. Also among the losers here, Lam Research off 8%. NetEase, not a chip stock, that's down 7%. Skyworks, a chip stock, down, that's 7%. So lots of weakness there, plus a double whammy of the yield curve.

Now, we'll take a look at that in a second. But I want to take a look at the sector action first. All 11 sectors in the red, but consumer discretionary, XLY in the bottom right, that is down the most, along with tech. Each down more than 3%. Heavy concentration of FAANG stocks in consumer discretionary and the tech space. So I think that kind of speaks volumes about what's happening in the sector action today.

Now in the travel space, also seeing a lot of weakness. We got United Airlines down 6%, Wynn Resorts down 4%, Royal Caribbean down 3%. So broad-based weakness in the travel sector. And just looking at some of the sectors that have been attracting money recently, such as the cannabis industry, we can see lots of weakness there, too. So just about everything except game stock getting sold today. And we'll just take another look at that. That's still holding onto gains of 20%, 148% over the last two days. Not bad there.

But before we head into the bell, I want to take a quick look of the bond market. This is a 10-year T-note yield. And right around 1:00 PM today, we had a seven year T-note auction. Didn't go very well, not lots of demand. That caused a spike in yield, and that saw another drop in equities. So the bond market really lagging the equities market today. And here is the closing bell on Wall Street.

- And that wraps up the ugly day here on Wall Street. All three of the major averages well in the red. Jared was just going through some of the biggest movers today, some of the biggest decliners that we saw in today's action. Dow closing off the lows of the day, still off though 561 points. S&P off nearly 2 and 1/2%. NASDAQ off just around 3 and 1/2%. Of course, this selling here coinciding or coming after we saw that surge in the 10-year yield. We have the 10-year yield popping just above 1-6 briefly earlier this afternoon.

Taking a look at some of the biggest losers here in today's market, a lot of the big tech names here amongst some of the biggest decliners. You have Apple, Google, Facebook. Those three names off just around 3%. Microsoft off just around 2%. Tesla. That stock has, of course, been under pressure over the last couple of trading days, but sliding another 8% today. The VIX, the fear gauge index, spiking above 30. All 11 of the S&P sectors in the red in today's trading session.

We want to bring back in our panel. We have Michael O'Keeffe, he's at Stifel, chief investment officer there. And Eric Diton, he's the president and managing director at the Wealth Alliance. Michael, we just heard Eric say before the bell that he's not worried or there's no reason to fear rising rates. What do you think?

MICHAEL O'KEEFFE: I agree with that. We're basically constructive looking forward. I think this is a lot about the market wanting to sort of process the idea of higher inflation. We have even more fiscal stimulus coming. There's going to be more spending, we're going to see prices go up a little bit. I actually think that it's healthy. The idea of higher rates, all in all, is actually not a bad thing.

- So Michael, I want to continue along that with something that Eric pointed out. But the question's for Michael. If in 13 of the last 16 rising rate environments, stock also went up, is this the dip when people should dive back in? Or should they wait 'til tomorrow for perhaps further dip, and consider next week?

MICHAEL O'KEEFFE: You know, all in all, we view today as a buying opportunity for sure. It's not to say throw it all in as a result of this move, but we think this was an unusual move, and we were buying today, for sure.

- Eric, how about you? Are you using this as a buying opportunity? And just where, I guess, are you finding the most opportunity in this market?

ERIC DITON: So you actually had me on your show on New Year's Eve. Right before I went out and celebrated, I was talking with you at the closing bell. And what I said was we were really due for this shift from growth to value. Now that we have these vaccinations kicking in that we should see a lot more opportunity in the value side, and that big tech should take a break. And that's really exactly what's happening.

And I mentioned to you banking and energy. I told you energy was dirt cheap, and in fact, that's been the best performer. We still have energy. I love the banks. And we're getting these interest rate spreads now. The Fed's keeping short rates down, right? And we know the loan rates are rising. It's a perfect environment for banks. So we're not buying the froth. We're not into the frothy stocks. We're not into the stacks, we're not into the GameStops. We're really looking at where we can find value, and we're seeing it in the value range. We even are OK with dividend stocks. We like those, too.

- I'm glad you mentioned dividends, Eric. Because I want to ask you, regarding energy, if the sector was off 2% today, but for the last 52 weeks, it's only down 7%. When we spoke to you, you know, at the beginning of the year, it was off 20-something percent. Take us talk like Royal Dutch Shell. They suspended the dividend, essentially. They cut it drastically. First time, I think it was, in 30 years. It's coming back, but the dividend hasn't come back. When will we get the energy companies that cut dividends say, OK, we'll start paying you again?

ERIC DITON: I think it's gonna take a while, because they're scared. I mean, yeah, oil prices had a recovery. Is this sustainable? We don't really know. I think if you're looking for income and energy, you may want to look more at the MLPs. A company like Energy Transfer that's covering their dividend three times over, paying something like 8%, or 7% to 8%, with tax benefits. That might make more sense if you're an income investor in this environment. The big oils, they've got a lot of headwinds ahead.

I mean, there are-- look, there's a Pfizer, right? You could buy a Pfizer, you could buy a Verizon and get 4% plus and feel very comfortable with that dividend.

- Michael, curious to get your thoughts on some of the small caps. Because we saw the Russell 2000-- I mean, along with the broader market, but the Russell 2000 today closing off just around 3.3%. What's your view just on some of these small cap names, that have staged a bit of a comeback but, as you can see on the chart that we're showing you right now, declined over the last couple of trading sessions?

MICHAEL O'KEEFFE: Well, it's giving back, you know, what was I think a 15% year-to-date. So small caps have actually been a good place to be. We're overweight as it relates to our top 10 models and such. And it really relates to the opening of the economy, basically getting the vaccine programs going well. We're going to see, as was discussed earlier on the show, spending kick-up, people sort of re-engage. I know my family's booking trips. And that's going to help small businesses for sure, the smaller companies. So we remain constructive.

- I'm checking real quick, Michael. The Russell this right now, year-to-date, it is up-- if I can get this. Oh, now it's not working. Russell 2000. OK, never mind, this app, which happened-- well, it's saying, come on, guys. It's not working. Look, the Russell is up I think about 11% year-to-date. But when we get the spending we're going to get out of Congress, it's going to be up dramatically more than that, isn't it?

MICHAEL O'KEEFFE: Yeah, that's exactly right. I mean, what's intense about this to me-- and you know, we talk about-- we're constructive generally, but we talk about bubbling risks. So one of the things we're watching for is too much inflation, right? So if that spending really kicks in, and we see a big couple of GDP prints, and really, things really get going, that's one of the-- we don't think it's a high probability, but that's one of our worries. Assuming that doesn't happen, I think small caps have a good run going forward.

- All right. Michael O'Keeffe is Stifel CIO. Eric Diton is president and managing director of the Wealth Allian--