Market Recap: Tuesday, May 18

Stocks dipped on Tuesday, with the Nasdaq erasing earlier gains to join the S&P 500 and Dow in the red. The S&P 500 drifted lower and headed for a second straight day of declines. The Nasdaq also sank, and the Dow shed more than 100 points, or 0.3%. Walmart shares gained more than 2.5% after the company posted first-quarter earnings that handily exceeded estimates and raising full-year guidance. However, Home Depot and Macy's shares declined even after both companies topped Wall Street's first-quarter earnings estimates. Jason Ware, Albion Financial Group CIO and Carillon Tower Advisors, Vice President & Portfolio Specialist Matt Orton, joined Yahoo Finance Live to discuss.

Video Transcript

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ADAM SHAPIRO: Right, we're going to the closing bell and to get us there, Jason Ware, Albion Financial Group CIO, along with Matt Orton, Carillon Tower Advisors Vice president and Portfolio Specialist, but guess who's back on the floor of the New York Stock Exchange? Jared Blikre, take us to that closing bell.

JARED BLIKRE: Well, I'll tell you what, we began the day in earnest here in the green but it looks like we're closing on a little bit of a negative news here. S&P 500 is down about 3/4 of a percent and I'm looking at the sector action only health care, real estate and utilities are in the green here. Also taking a look at crude oil, it was down on the day although it's coming off the highest level that we've seen in about two years. Other than that not a lot going on. We are focusing on earnings, so Walmart's in the bag. Going to look at TJX and Target tomorrow.

SEANA SMITH: Jared, when we take a look at some of the bigger movers I guess in the market today, yes, retail is a huge story but I mean, we're looking at some of the decliners we have Chevron off just around over 2.5%, Caterpillar one of those worst performers, Dow Inc. When we see a bit of that rotation out of the tech names that we saw this afternoon, I'm curious just to get your thoughts on it and what the traders on the floor have been saying today?

JARED BLIKRE: Well you know, I was talking with Keith Bliss about this the other day and he's not expecting very much to happen throughout the entire summer. We had a bi-signal on the NASDAQ last week but on the S&P 500 not really seem much above 4,200. If we get to about 4,300. 4,325 that would be an overbought signal but doesn't think we're going to actually get there. You know, the Fed is on pause here. They're probably not going to make any waves for some time.

Coming out of earnings season not going to be a lot of catalyst and I'll tell you what it's a little bit slow here just because of obvious circumstances. But in general we do see-- yes, we do see a lot of liquidity during the summer as traders kind of head for the beaches. And we've seen a lot of that recently, guys.

ADAM SHAPIRO: Hey, Jared as we go sideways on the indexes, want to point out that Tesla is up a little bit today but there's news of a big short with Tesla. Do you think that investors will push that aside?

JARED BLIKRE: Yeah, well, that short is really interesting. The most heavily shorted mega-cap stock that we've had as we head into the-- into the closing bell I'll say Tesla is at a critical level right now, guys. And finally here is that closing bell on Wall Street.

SEANA SMITH: And that does it for the trading day today. Again, some selling pressure into the close as you can see the Dow closing off 267 points, the biggest decliner in the Dow today. When you take a look at some of those names Chevron, Caterpillar, and Dow Inc., those three are the worst performers in the Dow.

The S&P closing off nearly 1% and the NASDAQ, which had been holding on to gains flipping back and forth between positive and negative territory in the final hour of trading, closing in the red off just around 0.5%. Taking a look at the sector action that we saw today, a bit of a mixed picture although the majority of the sectors trading lower. We have energy, financials, industrials and materials leading the way to the downside.

On the flip side though real estate, health care, and it looks like the utilities were some of the out performers in today's market. We want to bring in our panel to get their take on the back and forth action that we saw today. We have Jason Ware and Matt Orton. Matt first to you, just what do you make of it, just the fact that investors kind of couldn't really wrap their heads I guess around what direction we wanted to head today?

MATT ORTON: Hey, Seana. Great to be back and I think that's the question we've been asking ourselves over the past few sessions. And we've been telling our clients that we're probably entering a period where there's going to be increased chop going forward. We've had a pretty extreme rotation from growth into value. We've seen fits and starts of rotating back into the growth but at the end of the day earnings are coming to a close.

We've had a fantastic earnings season and now investors need to digest what could potentially be happening with inflation. But what we like to remind folks is that as we move sideways any sort of meaningful downside that you see really should be used opportunistically because earnings have been strong, guidance from companies has been incredibly strong going forward, the economy is starting to accelerate as we reopen.

So there's a lot of reasons to continue owning equities and it's all about having a game plan, making sure you know what you want to be allocated to should there be any additional downside that you can use opportunistically to get your exposure going forward.

ADAM SHAPIRO: Jason, good to see you again. And when we talk about growth, you mention the fact that we could be approaching that peak growth. But yet, if you are going to balance out and prepare for this, you are favoring certain sectors, technology, health care. What more can you tell us about a strategy to get through at least sideways trading this summer?

JASON WARE: Yeah, good to be with you guys again. So you know, hard to know what's going to happen over the next few months. I think if we do have a bit of chop and a listless summer I think what you want to continue to do is own good companies because the truth of the matter is is that nobody can predict stock prices over the short run. But what we can do is we can size up the fundamentals of the companies that we own and look out over the next one, three, and five years and say does it make sense to have these in the portfolio?

So what we continue to do is we want to air toward owning high quality and we do that in technology. We have a high quality tilt in health care in these wide moat consumer growth stories that you mentioned. So I think you can own a Starbucks as a reopening trade, but also as a durable growth theme for the next three and five years in terms of continue to capture more share in the coffee market. And getting people back into the cafes and getting them to spend more while they're there.

I think you can own an Amazon, which of course has been consolidating for the better part of the last nine months. But we've seen their per-share fundamentals continue to compound on themselves while the stock has basically done nothing.

And I think you can continue to own a company like Accenture which is a high quality technology company that is absolutely secular growth in nature but doesn't get nearly the same attention that the fang stocks do and that just continues to beat and raise each quarter and is not trading at that expensive of a multiple, around 30 times next year's numbers while growth is in the mid teens.

So there are areas you can go to build a good portfolio that is diversified, dynamic, and will get you through the chop. But nobody's going to be able to predict but on the other side we think owning these companies will reward shareholders.

SEANA SMITH: And speaking of a potential strategy, I guess, going forward, Matt we have President Biden in Michigan today touring Ford's Electric Vehicle Plant. We know that the Biden administration has put a huge emphasis on electric vehicles, a renewable energy push. Are you seeing any investment strategy there?

MATT ORTON: There's a lot of opportunities in that space and what's particularly interesting right now is you've seen a massive rally and I'll call it dirty energy over the past couple of months versus clean energy, which should be a big beneficiary of the new plans of the Biden administration. I think part of that comes from the big rally that you had an expectation of the bill coming up.

But I think one of the areas that has gotten a lot of talk but still has room to run is thinking about what's actually used in a lot of those alternative energy. Looking at batteries, copper is a very, very important component. It's also important in terms of infrastructure build out so when you look at a company like a Freeport-McMo-Ran, yes, it's up significantly year to date. But fundamentals have continued to improve. The company has been paying down debt and it looks very attractive for some of these long term plays that could be moving forward in terms of the build outs of this sort of infrastructure.

In addition to that, I think you also want to own these companies just because if we are concerned about an inflationary type of environment hard commodities can provide a little bit of insulation to that. So there's certainly a reason to look at ways to play alternative energy without necessarily investing in some of those more speculative alt-energy type names that have been incredibly volatile over the past six months.

SEANA SMITH: We want to get back over to Jared Blikre. And Jared, I mean, just give us a sense-- I spent a lot of time down on the floor pre-COVID, now you're back down there for the first time today-- just give us a sense of what it's like comparing it to the activity that we saw pre-pandemic.

JARED BLIKRE: Well, admittedly there's a little bit less activity here, although it is picking up. We were here last Friday scouting it out. And as traders come back to work, as everybody gets vaccinated, I expect a lot of activity to return to the floor.

And I'll tell you what, I got to put on some shoes, had to dust them off, was able to tie my tie and that was an experience I haven't had for about one year just sitting in front of my computer. So you can imagine, it's nice to be out here and things are going to pick up. Probably won't be wearing this in a few weeks. So all is looking good, Seana.

ADAM SHAPIRO: Yeah, the masks come off tomorrow in New York City in a lot of buildings-- we got the notice in my building today-- January, ah, January, June 1, we can start going without masks.

Jason, I want to go back to you and talking about these markets. There are some stocks that some of us might be afraid as average investors are actually more expensive when in fact, if you're looking at the forward PE ratios they in fact are not. Is there anything you're targeting?

JASON WARE: Yeah, I think that's right. So you know, we look at our portfolio in valuation cohorts. So we have a number of stocks that are trading just below or right around an S&P multiple whether that's like JP Morgan or Berkshire or United Health Care that has great secular growth dynamics with their Optum business.

Then up from there you know you get into the Home Depots and the Alphabet's and Apples that have a mid 20s PE but continue to have some really strong, durable growth profiles growing earnings north of 20%. And then above that there are valuation areas like Microsoft and Visa and Adobe that are trading at 30 times or a little bit more than 30 times. Again, not expensive in an environment where interest rates are still negative along a lot of the Treasury term structure and that if the Fed continues to remain accommodative for the next year or two, which we expect they will, you know is very supportive to a company that is trading around 30 times earnings that has growth that's north of 20% like a Microsoft and the visa that are dominating their category.

So I think there are ways that you can absolutely allocate your portfolio without overpaying and staying away from the frothy parts of the market. Believe it or not, Amazon is trading at around 50 times our expectations for 2022 earnings. That, that's pretty amazing given the fact this used to be a triple digit PE stock. By the way it's trading a little bit north of three times sales. They're going to do a half a trillion in revenue this year. So you know, there are areas you can go where you can get growth without overpaying for it.

SEANA SMITH: Matt, what about housing? We had housing starts off just around 9.5% today. This has actually been an area that has certainly been a bright spot during the COVID-19 pandemic. How is the market looking at this because I think there's lots of questions out there as to when we start to see the housing market begin to cool off?

MATT ORTON: It's a great question and living down here in Florida, it's-- you've seen the housing market take off and just continue to be incredibly strong. And I think a lot of folks are wondering when and if does this end? But I think you've got to break the housing market down to the actual home builders, where there continues to be backlogs. And a lot of home builders are actually making delays and pushing off the amount that they're building because they just can't keep up with the demand and source the materials with what's available right now.

But then you look at earnings like Home Depot incredibly strong earnings, positive guidance going forward, folks are still continuing to invest in this home improvement type of theme as affordability continues to be an issue. So those remain very, very good investments. And home builders, going back to this theme of valuation and being conscious of what we're paying for companies, I think investors going forward are going to be more discerning about what you pay for these companies.

And so there are some risks there but you certainly want to look at saw a Lowe's, which offers exposure to that theme not quite as expensive, certainly an area to continue to look at. And that's why when you build these overall portfolios you want to have exposure to some of these parts of the market but making sure that you're allocated properly, have some exposure to home builders, or say cyclicality within your overall allocation, but make sure that you are properly diversified.

And that's what we continue to emphasize to clients is to have that proper diversification. And along that lines and Europe continues to look very, very interesting as well, trading at a significant discount, fantastic earnings. And so we just say be opportunistic when you're ready to allocate capital.

ADAM SHAPIRO: Matt, I'm hoping that land boom doesn't end in Florida, because it usually ends after a hurricane and I got family in Dade County. So all the best to you, Matt Orton, Carillon Tower Advisors Vice President and Portfolio Specialist. Also, thank you Jason Ware, always good to see you, Albion Financial Group CIO.