Market Recap: Thursday, February 11

Stocks traded choppily as investors digested a host of corporate earnings results and considered policymakers’ next moves to support the still virus-stricken economy. The S&P 500 pointed to a third straight day of losses, as cyclical energy, industrial and financial stocks underperformed Thursday afternoon. The Dow shed about 0.4%, or more than 100 points, shortly after noon in New York. Tech stocks outperformed, and the Nasdaq traded little changed. Bianco Research President Jim Bianco and JP Morgan Asset Management Global Market Strategist Jack Manley

Video Transcript

SEANA SMITH: With just around 3 and 1/2 minutes to the bell, we have the Dow off just around 26 points. S&P and NASDAQ, though, holding on to gains. We want to bring in Jim Bianco. He's the Bianco Research president there, and also Jack Manley, JP Morgan Asset Management global market strategist. Jack, let me go to you first. We got that weaker than expected jobless claims number out this morning. You actually said that Friday's jobs report was better than expected. How is the market looking at the labor market at this point?

JACK MANLEY: On the one hand, the labor market probably isn't as strong as it appears at first blush. If you actually kind of open up this story a little bit, take a look at what's going on with the participation rate, there are a lot of people that are out there on the sidelines, unable to get back to work. And so, the numbers themselves may not be telling us exactly the truth.

But the point, I think, is the direction. It's the rate of change, not the absolute levels, and the fact that the labor market continues to improve, that economic data continue to be reasonably firm, and the fact that the vaccine continues to get rolled out I think fairly successfully, at least when you compare it to what's happening in other countries. All of these things are moving in the right direction. And I think that there are reasons to be excited from a positioning perspective.

ADAM SHAPIRO: All right, well, the direction that investors are looking for is up, up, up. And Jared Blikre is watching what's happening on the markets as we get ready for the closing bell. So Jared, take it away.

JARED BLIKRE: Well, we got some action in individual names and industries, but the averages, as is the case recently, not doing a whole lot, although we're not seeing everything in the green has been the case. NASDAQ, by the way, is set for a record close, up about 30 basis points, as you can see on the screen here. Dow, Russell 2000 slightly in the red, S&P 500 slightly in the green.

Well, let's take a look at some of the movers today. This is the NASDAQ 100 heat map. Mixed picture for the mega caps. Apple, Amazon, Facebook each down less than 1%. Alphabet barely positive. Microsoft and Tesla each in the green less than 1%.

But it's been a day about chips, on the news that President Biden is going to accelerate requests for chip investments and also to be able to get the much needed chip supplies and basic materials for chip producers to be able to make the necessary components that automakers and console makers and everybody else is going to need into the end of the year. So if you look on the upper left there, that's KLA-Tencor, followed by Lam Research. That's up 8% and 7% respectively, followed by Applied Material, Western Digital, Micron. That's the top five rounding out all in chip names.

After that, you get to Kraft Heinz reporting after earnings, diverging itself-- or excuse me, divesting itself off its peanut portfolio. Also taking a look at the sector action for today, now, previously, we had almost everything in the red, except for tech. Tech still the outperformer by far, thanks to those chip names. XLK is up 1% to a record intraday high, except for a record close as well.

Also looking at the downside, energy is the worst performer. That's down 1 and 1/2%. And peering into the heat map for our energy sector today, we can see some of the majors having a bit of a rough go, giving back some of those recent gains. Exxon and Royal Dutch Shell each off about 2 and 1/2%. Halliburton, by the way, off about 4%. Well, here's some of the big movers of the day in the cannabis space to the downside-- wrong direction, admittedly. But here is the closing bell on Wall Street.

[BELL]

SEANA SMITH: That does it for us today as we check out the final trades. It looks like the Dow is going to close the day in the red, although well off the lows of the day. It looks like it's just off six points, so not moving too far from the flatline. S&P and NASDAQ, though, holding onto gains. The NASDAQ was the outperformer for most of the trading day, closing up just around 4/10%. The S&P up six points.

Taking a look at some of those movers, Jared went over that a couple of minutes ago. But taking another look at it sector wise, technology, healthcare, and materials are some of the performers in today's market. The worst performer is energy. We're seeing energy under pressure as oil closes in the red as well. Within the Dow, the worst performers in the Dow Walgreen's, 3M, and IBM. So some of the reasons there that we're seeing the Dow close in the red.

We want to bring back in our guests. We want to bring back Jim Bianco and Jack Manley. And Jim, let me just go to you just in terms of the recent action that we've seen in the market. What's your take on it, and I guess, where are you seeing some opportunity right now?

JIM BIANCO: Well, I think that the market has really been bifurcating itself quite a bit. There's been a big shift among investors. They have been moving away from their traditional products of active managed funds or even ETFs. And they've been going it on their own. We all know the Reddit story as well.

But what we also have to remember is, for the moment, they're winning. They're winning pretty much everywhere that they go, whether it was them buying airlines last spring after Buffett sold them, and then the airlines doubled after Buffett sold them, or running into all the nonprofitable tech companies, or running up Tesla, or then with the short squeeze, I think that we're finding that there is a newfound investor out there, and that is the individual investor buying stocks on their own.

And I think it's a twofold thing. One, there are a lot more risk tolerance there. I think the Fed might have something to do with that, telling them that they all got their back. And I also think that there's a little bit of a frustration that the traditional products that they would buy aren't seeing the needs they are.

They recognize there's a disruption going on. They recognize that there's going to be a big change in the economy, none bigger than the financial services business and the banking business. This is going to have a huge change. And they want to be part of that. And traditional investment products are just not giving it to them.

ADAM SHAPIRO: So Jack, let's keep this going because we talk about the Reddit retail investor phenom. But how do the markets, how do money managers and professionals work that into your strategies? You got to deal with the high frequency crowd and the sharks and the dark pools. Now you've got to deal with this.

JACK MANLEY: Yeah, I mean, I think that's exactly the point, right? Is that this is just one more component to be added into the calculation, just as you had to add in those high frequency traders a couple of decades ago. I mean, 2020 created this monster, if it is a monster. You had a lot of idle time on the couch, where you were pretty bored. You had barriers to entry when it came to investing being removed. A lot of these online brokerage services are essentially frictionless.

And then you had a world kind of awash in money, ultra easy monetary policy, ultra easy fiscal policy-- kind of the perfect storm for creating this retail investor. And their motivations may be a little bit different. Their access to information is certainly different. But their money is as good as anybody else's, and they're going to participate because they can. And so I think we need to just price this in moving forward. And the biggest takeaway, as you mentioned, is, I think, just structurally speaking, greater volatility in markets in the years to come.

SEANA SMITH: So then, Jack, how are you hedging against some of that greater volatility, just because there is another factor out there that-- where we are seeing risk?

JACK MANLEY: Well, as Jim mentioned, a lot of the names that are getting bid up are getting bid up for fun. They're not necessarily based off of the fundamentals. And so what I still think we can do as longer term investors is focus on those longer term trends. Like, technology and healthcare we continue to believe are long term secular stories. I don't think anybody can make a good faith argument that tech will be less important a decade from now than it is at the moment.

And at the same time, we can start to lean into some of those more cyclical parts of the market, some of the laggards of 2020. Energy maybe to some extent, industrials maybe to some extent. But as always-- and you've heard me say this before-- I continue to believe large cap financials may be one of the best opportunities in markets right now. So I think there are still opportunities, as long as you position yourself for the long run.

ADAM SHAPIRO: Jim, we've had other analysts on who've talked about financials being a good bet this year, 2021. I'm curious what you've set your sights on to because there is this concern of inflation. There's this concern that some stocks, some sectors are overvalued at this point.

JIM BIANCO: Yeah, I think going into '21, I've been pretty steadfast that the story of '21 is going to be inflation. Now I'm in the camp that it's going to return in the second half of the year. I think all the money we've been mailing to people, the stimulus, it's finding its way into the equity market right now. But eventually, when the economy reopens, that money's going to come back out and it's come out back out in the form of spending, and it's going to push prices higher.

Now that's my story. If the other side of the equation is, look, we're going to send all the stimulus money out, and there's not going to be inflation, that could actually be a bigger story. Because then, the monetary theory crowd wins. The universal basic income theory wins. And we have to go back to the basics of finance and rewrite it. And we're now probably going to see Mitt Romney's bill where we're going to be sending people money every month if they have children and probably sending everybody else money every month, that that's going to become the order of the day if we don't see it.

If there is no consequence to sending people money, we're just going to keep sending it to them, right? Now the consequence is, the poor get help, the unemployed get a bridge, and the rich to find his equity markets get new highs. So, keep mailing checks. And I think we're going to keep doing that until we get inflation. And if we don't get inflation, we're just going to keep mailing checks and have to rethink our whole monetary theory.

SEANA SMITH: Jack, what do you think the market is anticipating when it comes to inflation?

JACK MANLEY: Well, when I look at inflation, I mean, I think there are certainly some pressures building to drive it higher. But there are long term anchors in place when it comes to where inflation can actually go. You have the rise of e-commerce, online shopping. I mean, we as consumers right now have more price discovery power than basically any human being in the history of commerce.

And then you have the rise of-- or a very large and growing, I should say, trade deficit with China. You have the United States coming online as a swing producer in global energy markets after the shale oil revolution. All of these things I think keep a lid on where inflation can go.

So I don't think anyone is seriously pricing in 10%, 15% a return to the late '70s when it comes to the inflation environment. But is it possible that all of this money sloshing around in the economy right now starts to bubble up inflation in the back half of this year? I think that is entirely in the cards. But what that looks like is maybe breaching the Fed's 2% target modestly, rather than sort of shooting the lights out and getting into double digit disaster-like territory.

ADAM SHAPIRO: I'm going to say thank you to our guests, because we have Disney earnings. Jim Bianco, Bianco Research president, Jack Manley, JP Morgan Asset Management, thank you both for hearing.