Market Recap: Friday, February 12

Stocks ended higher on Friday, with the S&P 500 and Nasdaq closing out the session at record levels.The S&P 500 and Nasdaq each rose about 0.5%, while the Dow ended just a tick above the flatline. U.S. stocks shook off earlier declines after tracking a drop in overseas equities, after new data showed that UK gross domestic product slumped by a record 9.9% in 2020 as a virus-induced recession swept the country. Partner and Managing Director at Aspiriant, Sandi Bragar, and RiverFront Investment Group’s Chris Konstantinos joined Yahoo Finance Live to discuss.

Video Transcript

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ADAM SHAPIRO: Let's quote Kermit the Frog as we head toward the closing bell. It's not easy being green, but all three of the indices are in the green. Let's bring in our guests, Sandi Bragar, partner and managing director at Aspiriant, and also Chris Konstantinos, RiverFront Investment Group. Let's start with you, Sandy. Are you surprised we're going to end the week? It looks as if we will close with the Dow, the S&P 500, and NASDAQ all up today.

SANDI BRAGAR: Not a big surprise to me. What I'm most excited about is the run in small caps. They've had a nice week here in the US, and also emerging markets. Those are two areas that we're allocating a lot of money toward, especially on the value side of things. That's where we see opportunity, Adam.

SEANA SMITH: Chris, where do you see opportunity right now?

CHRIS KONSTANTINOS: Yeah, I like what Sandi's saying. You know, if you look at small caps, you look at emerging markets or value plays in general, these are the types of plays that tend to do well when the economy is in the early stages of a reflation. And I think that's basically where in the cycle we are. So like what Sandi was saying, we actually have also been adding to some similar themes since November. Not so much in small caps, but rather in value oriented plays, both in the US and internationally. Emerging markets is another place we've been adding in our longer horizon portfolios.

And it's not that we've totally forgotten about the growth theme. There are some secular growth stories that we still really like. But after having been overweight growth for quite some time-- you know, years-- it's kind of nice to see value start to get a bid. Because I really think that that illustrates some underlying strength in the market itself and its ability to continue to make new highs.

ADAM SHAPIRO: All right, Sandi and Chris are going to give us more deep dives on their input into where the markets are headed, but let's go to Jared Blikre. We are a minute and a half out from the closing bell.

JARED BLIKRE: Yeah, we got a nice rally here. So let's go to the YFi Interactive. The Dow was only up marginally, but had been in the red. All three had been in the red, I believe, in the last hour. So the S&P 500 and NASDAQ each up about half a percent. And you can see this liftoff we got here in the final hour of trading. But look at the Russell still holding on to losses for the day.

Now let's take a look inside the market. Here's how the NASDAQ 100 is shaping up. And you could see money pouring into the mega caps because a lot of these names were read just an hour ago. Apple's now in the green, along with Microsoft, Alphabet each up less than half a percent. But Amazon's up exactly half a percent, and so is Tesla. Facebook in the green as well.

Well, let's take a look at the cannabis stocks as we head into the final 30 seconds of trading here. And Sundial having a little bit of a tough day, along with Tillray. You can see those stocks down 12% and 10% respectively. But you take a look at the gains for the week-- lots of dark green there. And just as we head into the closing bell, we'll take one final look at the week's action in sectors. Energy up 5%, followed by tech, communication services, financials, healthcare, and industrials. All of those are outperforming. Only utilities and discretionary are in the red.

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SEANA SMITH: And that does it for the week here as we close out the final trading day. We have the Dow, S&P, and NASDAQ shaking out their final trades, some buying action, like Jared just noted, into the close. We have the Dow up just around 28 points, the S&P up nearly half of a percent, as well as the NASDAQ. Some of that sector action that Jared was just going through in terms of the week, energy, technology among the outperformers there today. Leading the way, energy, financials, and materials. In terms of the Dow, why we're seeing that green on the screen at this point, Intel, JP Morgan, and Goldman, those three stocks leading the way.

We want to bring back in our panel. We have Sandi and Chris here standing by. And Sandi, let me just go to you. We haven't talked about the 10-year yield yet, and that's so important. We had the 10-year yield hitting its highest level that we have seen in a year. And of course, this comes on as we get some worries about this pent-up inflationary pressure. So I'm curious just to get your take on what you're expecting, what you're anticipating now.

SANDI BRAGAR: Seana, our outlook for fixed income is on the low side. We expect maybe 1% to 2% returns at most, as we look out over the next 7 to 10 years. So over the last six months, we've been reducing our fixed income. We haven't gotten rid of it completely. We think it's a nice buffer for volatility. And our fixed income is ranging on average between 10% and 30% of portfolios.

We see a lot more opportunity in the stocks, and as I was mentioning earlier, in more of the value names, particularly in small cap overseas in emerging markets. We're very concerned about large cap growth. So we have some positions there. But we're worried that we might be in the ending stages of a bull market, and we'd like to protect against that. And again, that's where the fixed income helps a lot.

ADAM SHAPIRO: So I'm going to take Sandi's comment about the end stages of a bull market, and I'm going to ask you, Chris, that a lot of us, as perhaps middle of the road investors not with the insight the two of you have, look at the earnings surprises we're getting in the fourth quarter. And the companies always lower expectations, and then they surprise us. But you're seeing this not just in the United States, you're seeing it in other parts of the world. So what should that tell us as regular investors?

CHRIS KONSTANTINOS: Yeah, again, I think this goes back to the breadth question. Breadth in the US market, meaning the average or median stock, is improving, which I think is an indication of the overall health. And then breadth, looking globally, meaning how many markets outside the United States are also doing well, that breadth is also doing quite well. So I think that that gives us some optimism that the cyclical bull market that we think started sometime in March or April of last year still has legs.

And in fact, we track what we call earnings momentum, which is, you know, the ratio of upward revisions to downward revisions. We track that across a number of different countries and regions. Right now, it's as strong as I've ever seen it globally, which I think is, you know, to your point, is a really good sign. And yeah, companies do-- they like to guide us down. And then they surprise to the upside in the last moment.

But another way to look at that analysis we do internally is we actually look at earnings beats relative to where the company was guiding six months prior. We actually just looked at this in an internal meeting this morning, and that is as strong as we've seen since the first quarter of 2018. So, again, I think these are some clues into the overall strength of the market. We're not as concerned that we're at the precipice of a, you know, of a meaningful negative trend change in markets.

SEANA SMITH: Sandi, if we do see that meaningful negative trend change, I guess, what do you expect to be the catalyst? Is there one or two things that you're specifically looking for?

SANDI BRAGAR: Seana, I wish I knew what the catalyst would be. That would give us more insights. It could be anything. We're really focused on valuations. And valuations of US large cap stocks are just so high. We've seen market capitalizations for some of the biggest names double and triple over the last nine months. And there have been strong earnings, but earnings aren't matching that. And so, you know, it'll be interesting to see what happens.

We're protecting ourselves and our clients. We have some fixed income, and we have some liquid alternatives. We're not necessarily predicting that there will be a big fall. But if it happens, if there is some downward momentum, we want to have some protection. And we want to have some dry powder to go back into equities if we see some declines, especially in those large cap US stocks.

ADAM SHAPIRO: And as we say all of this, we just crunched, you know, for the week, you got the Dow up about half a percent. You got the S&P 500 up 1 and 1/4%. The NASDAQ's up almost 2%. So I'm going to throw this to you, Sandi. Caution, but don't take your foot off the gas yet.

SANDI BRAGAR: No, don't take your foot off the gas. And you're mentioning the returns for the week. For the year, we're only five or six weeks into the year. The returns have been really strong. So no, we think clients should be remaining invested. A lot of clients have-- that we're working with have a lot of cash on hand from liquidity events that they were pushing into the end of last year with fears around maybe some rising tax rates under the Biden administration.

And so we've been having a lot of questions. They're asking, is it too frothy? Should we be putting money in? And again, we do think this is a good time to be invested, but we think investors should really pay attention to where they're investing. Stay away from broad market based investments. Look for those areas of the market that just haven't recovered as much from April of last year. And you should be on a good path in the months and years ahead.

ADAM SHAPIRO: Hey, Jared, real quick. Take us home on this. You got a final thought?

JARED BLIKRE: Yeah, let's take a look at the charts here because it was a pretty choppy week in the Dow. We did end on a high note here, not far from the record highs we saw earlier in the week. You take a look at the NASDAQ. The NASDAQ 100, by the way, closed at a record high. The regular NASDAQ did not. But here's the NASDAQ just matching its highs from Wednesday. S&P 500, record closing high. Russell 2000 just trailing off a little bit into the end of the week. But you take a look at what it's done on a year to date basis, pretty nice gains. They're up 15%. And by the way, best start to February for the Dow since 1931.

Now here is a look at the 10-year T-note yield. That was in play this week, ending at the highs at 1.2%. Haven't seen that since last March. And finally, the US dollar index rebounded a little bit today, but gave those gains back in the middle of the day, ending for the week on a down note. But that is supportive of the risk markets, which we've been talking about. Guys.

SEANA SMITH: Thanks, Jared. Chris, we'll wrap it up with you. What's the number one thing that you're watching as we turn our focus to next week in terms of what could really impact the markets?

CHRIS KONSTANTINOS: Yeah, sure. And I think you brought it up-- Sandi brought it up earlier. The 10-year Treasury-- we think one of the single most powerful drivers of equity prices here is not only the direction of interest rates, but also the magnitude of them. I don't think that stock markets get too concerned about rising rates until you get somewhere over 2% on the 10-year, which historically speaking, is still a pretty low rate. But you also have to watch the shape of the yield curve. And we're watching that very closely.

We're still thinking that we're in that sort of Goldilocks period, where a broad steepening of the yield curve is positive for equities. But again, if rates go too high or if they move too quickly, that could extinguish this rally we're seeing. So we are watching that pretty closely.

ADAM SHAPIRO: And Sandi, your last take on what you're watching for next week or even as we go out another month.

SANDI BRAGAR: Adam, we are keeping an eye on valuations. We're looking at rebalancing client portfolios with the run-up in equities. So for this quarter, it's a good time to rebalance and make sure we're staying on track with our allocations.

ADAM SHAPIRO: Sandi Bragar is a partner and managing director at Aspiriant, and Chris Konstantinos is RiverFront Investment Group. We appreciate you both being with us today.