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Market Recap: Friday, Aug. 27

Jeff Powell, Partner and Chief Investment Officer at Polaris Wealth Advisory Group and John Mowrey, Chief Investment Officer at NFJ Investment Group, help Yahoo Finance wrap up the final day of trading for the week.

Video Transcript

ADAM SHAPIRO: Let me start with you, Jeff. And when we heard from Powell talking about inflation, you seem to think that what we're seeing in the drop in lumber prices and used car-figure prices coming down actually backs up what the Fed is telling us. Is that going to hold consistent past the next FOMC meeting in September?

JEFF POWELL: Well, if you believe future prices, I think that the answer is yes. We're taking very much a wait and see kind of attitude going on. I mean, there's so many moving pieces to what's going on economically right now being in a worldwide pandemic.

I mean, some of what we're hearing from Southeast Asia, Malaysia specifically and seeing Ford temporarily shutting down. Ford F-150 manufacturing could spike back up some of the things that are driving a higher CPI price. So for the moment, we're hoping very much that the Fed is correct with this to be a transitory inflation. But we're also not holding our breath in the process either.

ADAM SHAPIRO: OK, so we are 20 seconds to the closing bell. Just want to remind everybody that as we get ready for the other side of the bell to make sure that you are unmuted so that we can hear what you have to say. But there it is. We head toward the closing bell with the Dow up 242 points, and the S&P 500 and NASDAQ hitting intraday high.

[RINGING]

[CHEERS AND APPLAUSE]

SEANA SMITH: And that wraps up another record day here on the street for this week. We're looking at gains for the day. Also, gains for the week. The Dow and S&P and NASDAQ all moving to the upside. The Dow pulling up just around 250 points, as we check out the final trades of the day. It looks like it's up 241.

S&P up just around 9/10 of a %. The NASDAQ was the leader for today, up just around 1.2%. In terms of the outperformance that we're seeing in some of the averages, the Dow top performers, Dow Inc., Boeing, and Disney-- those three stocks leading the way today. Also, the action, the 10-year yield. We heard Jared talking about that earlier.

We saw the 10-year yield pulling off just a bit, closing down just-- or off, I should say, just around to 5 basis points. In terms of some of the other sector action that we're seeing today, energy by far the leader with the jump that we saw in crude. We're also seeing gains from communication services. And materials health care is a sector that is lagging behind today.

Let's bring back in our panel, Jeff Powell and John Mowrey to help us break down not only the action that we're seeing today, but also what we could expect going forward. And John, I guess just what's your big takeaways from what we heard from Powell today? And what do you think that-- or how do you think that sets up the market here going forward over the next couple of months?

JOHN MOWREY: Sorry, I was on mute there. So I think that the moves today were more favorable for the equity markets, no doubt. And I think the Fed learned its lesson from '13 to taper tantrum and then in 2018 where you had really a double taper scenario. And even though stock market prices are at all-time highs, valuations are not.

And particularly I point to some interesting areas where we're seeing valuation dislocations. Semiconductors are one area that I would point to. You're seeing very favorable earnings growth there. You're seeing multiple contraction. And I think that's for a couple of reasons.

One is that you have supply chain challenges. And that's created an opportunity that you have some challenges coming out of China. But one interesting element around [? SMEs ?] that doesn't get a lot of press is that you've got a lot of dividend growth coming out of SMEs.

In fact, the top 10 SMEs globally have a dividend growth rate of 20. That's three times the S&P dividend growth rate. And given where inflation's running, I think that presents a really interesting opportunity for A, multiple appreciation, but [? B, ?] a way to offset inflation. So we like the SMEs here. And we think that, yeah, the mood is bullish.

One point I will make that I thought was a little bit interesting is that the Fed didn't make any mention of the mortgage-backed security purchases, $40 billion a month they're doing there. And given that the hot as housing market is as hot as it is, I was a little surprised that they didn't discuss that piece in their comments.

ADAM SHAPIRO: They don't want to spook anybody with a taper tantrum like Bernanke did back in 2012. Let me go back to you, Jeff, because you've made a couple of points about the changes we've seen from the beginning of the year to where we are at this point.

The top-performing sectors in the first half of the year was energy. We're seeing another surge in energy now though. Should I be shifting out of energy if I was there at the beginning of the year? Shouldn't I just stick along for the ride? It seems to me, got a hurricane in the Gulf. I got OPEC meeting next week. This could go up even more. Couldn't it?

JEFF POWELL: Well, you're dealing with energy. You're dealing with kind of a commodity that has price manipulation that's pretty easily moved around by things like OPEC. Or if the Russians decide they want to stick with OPEC or if they want to sneak a little extra oil on the side and so on, it tends to be a very volatile area of the market.

I think one of the things that you really want to be looking at specifically with energy, though, in particular is as the world economy continues to open up, the use of energy is going to continue. I think that's more the driving factor. So as you see some volatility, as you saw some pullback in this quarter in particular, the outlook for energy over the next 12 to 18 months still remains quite strong.

SEANA SMITH: John, one of the reads that we got out this morning was on consumer spending. And it slowed the last month, was up just around 3/10 of a %. Are you worried at all about the pullback or some of the hesitancy that we are seeing from consumers over the last couple of readings that we've gotten?

JOHN MOWREY: You know, I'm not, actually. I think consumers in a very strong position. Balance sheets are strong for US consumer as well as home equity's up as was mentioned earlier. So the US consumers in a very strong position. And I think you can see that reflected in corporate profits. They continue to roll in favorably.

So, again, we would-- there are a lot of macro events swirling around. But one of our slogans here at NFJ's numbers over narratives-- there's a lot of narratives out there, but the numbers speak for themselves. And valuations continue to be favorable in a number of areas.

Consumers-- one place where we are seeing favorable valuations in technology and that I'd also point to some of the REITs having interesting valuations here. So we think that the consumer is in a strong position. The banking sector's in a strong position. Really, I would say the thing that folks should be on the lookout for are exogenous events which are obviously hard to predict.

But nonetheless, given that we've had a pretty smooth ride in the equity markets, I think that's probably the number one risk. And there are areas that will offer defense. I think REITs are one way to play that. They have participated to the degree some of the other areas have. So I think that's one way to get upside participation as well as some downside protection, particularly that [? towery ?] data center REITs look particularly attractive here.