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Market Recap: Friday, May 14

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Stocks rose on Friday, logging a second straight day of increases but still posting weekly declines after steep drops earlier this week. Kevin Nicholson, RiverFront Investment Group Global Fixed Income Co-CIO and Loreen Gilbert, WealthWise Financial CEO joined Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

ADAM SHAPIRO: All right, we are two hours-- two hours, two minutes to the closing bell. To help us get there, we invite into the stream, Kevin Nicholson, RiverFront Investment Group Global Fixed Income, as well as Loreen Gilbert, WealthWise Financial CEO. Hold right there, folks, because Jared Blikre is going to take us to the bell.

JARED BLIKRE: That's right, guys. What an eventful week it has been. And let's go to the Y! Fi Interactive here. We got the NASDAQ up 2.4% for the day. But guess what. It's down 2.26% over the last five days. So the week has seen a number of ups and downs also in the Dow. That is up-- excuse me, down 1% for the week, although it's up 1% for the day. Similar story with the other indices.

I do want to take a quick look here at the VIX because, guess what, at the beginning of the week, we were down here below 20. And we are almost-- yeah, we are below 20 right now. But we reached all the way up to 30 at one point. So that bears watching as well.

Also, the 10-year T note yield. This is last Friday. So that was off the payrolls report. But we dipped all the way down to 1.47%. And now we're at 1.65%. But a big, big move in the bond market as well.

And despite all this, guess what we're seeing today, a lot of green in the NASDAQ 100. Some of the standouts, all the mega-caps up more than 2%. But Facebook and Tesla up more than 3%. We were looking at that Tesla chart at the beginning of the hour, somewhat encouraging to have bounced off of the 200-day moving average. Looks like it's going to close there as well.

We've got to take a look at the semiconductors because those are flying high after getting smashed earlier in the week. You take a look at the five-day price action. And returns for these guys still in the red. Still got some ways to go here.

But as we approach the final bell for the week, we're going to take a look at the sector action. Over five days, only staples, financials, materials ended in the green. Discretionary, tech, and communication services were the worst. Those are the banks that-- here's the bell, guys.

[BELL RINGS]

SEANA SMITH: And that does it for the trading week. And like Jared was saying, it's been quite a wild week for the markets as we close things up today. Dow, S&P, and NASDAQ all in the green. You see the Dow closing off its highs of the day, but a rally of 359 points. The S&P was up 1 and 1/2 percent. And the NASDAQ was up more than 2%.

We saw a lot of those big tech names that Jared was just going through really driving a lot of today's action. Sector-wise, all 11 of the S&P sectors trading to the upside. Energy, technology, communications services, and consumer discretionary leading the way.

On a weekly basis though, a very different picture. The Dow closing the week off just around 1%. The NASDAQ up more than 2% for the week. And for the week on the sector basis, consumer staples, financials, and materials were the only sectors closing out with gains.

We want to bring in Kevin Nicholson and Loreen Gilbert to help us make sense of some of the action that we saw this week. And Loreen, let me go over to you first because we certainly are seeing some buying action in a lot of those big tech names today. Certainly, they had been under pressure for the majority of the week.

The NASDAQ still off more than 2%. The selling though, that we saw in a lot of these big tech names, does it make sense to you? Or is it a bit of an overreaction from your view?

LOREEN GILBERT: Well, I think today what we're seeing is a reaction to the retail sales report. And it's, in a sense, bad news on that end was good news for the tech names, anticipating that it might be longer, again, before the Fed increases rates. And we know that that area of the market is very sensitive to potential rate increases.

But I think what we're seeing as the trend is that we know eventually there's going to be a tapering of purchases by the Fed. And we're going to start hearing that. And I would expect that to happen sooner than later, as we've had these inflation concerns.

So I would say that that trend, I think, will continue with a shift in the market. And I would expect some volatility over the next few months, as we're in this transitory time of figuring out where are we going.

ADAM SHAPIRO: Kevin, you've pointed out that plenty of investors this week might have overreacted to what we were watching and that now, clearer heads are, quote, prevailing as markets look to rebound to end the week. But you also say, hey, now's the time to rebalance portfolios. What would that rebalancing look like?

KEVIN NICHOLSON: Well, I know for us, we started the year with about a 5% overweight to equities. And that grew to about 7 and 1/2 percent. And I think, at the very least, you bring it back to where we started the year, if not a little bit lower just because valuations are definitely not cheap in here.

So I think that when you're seeing these pullbacks, markets are going to react violently when they think that inflation is getting ahead of the Fed. And so this is why I think that it's important for you to rebalance your portfolio, not get too far out over your skis as far as your equity overweights are concerned.

SEANA SMITH: Kevin, how are you looking at the employment situation? Because this is something that we've heard from a number of guests this week on the heels of that weak report that we got out last Friday. We were just talking to Jay Timmons, the CEO of the National Association of Manufacturers, last hour. And he was saying that many manufacturers just simply can't find the workers. How big of a worry is this, though, the market?

KEVIN NICHOLSON: Well, I think that the market has been reacting to that news pretty negatively of late. But I think that once we get closer to September, when the extended unemployment insurance starts to roll off and people start to go back and look for jobs, that we will start to see the labor situation kind of ease some.

The big thing that folks are worried about right now is that they're worried about wages increasing and that creating inflation. But I think that over time, it is going to prove to be transitory and that technology, in itself, is going to help part of this because technology is the biggest deflationary factor that we have to deal with.

And I think, between technology and global competition, we're not going to see inflation get out of hand. But the next couple of months will be very important to find out whether or not it's transitory, especially leading up to that September meeting for the Fed.

ADAM SHAPIRO: Loreen, you've pointed out that the issue isn't so much inflation but accelerating inflation that investors have to think about. So where would an investor perhaps be best to protect themselves? Would it be maybe just TIPS if they want to go into fixed income or real estate? Because right now, I mean, there are depressed prices for commercial real estate.

LOREEN GILBERT: So I'd say the classic story as far as inflationary concerns, we need to look at real assets as part of the asset allocation and adding those in if portfolios don't have them. Like you mentioned on the fixed income side, we still like TIPS. It was one of the best performers last year. This year it's been somewhat flat. But we continue to expect that.

And I actually want to comment too. We're actually increasing our equity exposure not decreasing it. And the reason being is that we anticipate more issues on the fixed income side, as we do believe we're eventually going to have to go into that rising interest rate environment. And while we can be tactical on the fixed income side, we see more opportunities on the equity side. So our story is actually to increase the equity exposure.

SEANA SMITH: When do you expect us to go into that rising interest rate environment that you were just talking about?

LOREEN GILBERT: I think it's actually going to be sooner than the Fed has anticipated. And so instead of looking at 2023 or even 2024, I think it's going to be 2022. And so I think what we're going to hear from the Fed is slowly entering those ideas into people's heads as they start talking about the idea of needing to taper their purchases.

And with these inflation numbers, even though they say it's transitory, that a hot economy is going to require them to start raising rates. So I expect it to be sooner. And I expect us to start hearing more comments from the Fed this year.

ADAM SHAPIRO: Loreen Gilbert is WealthWise Financial CEO. And Kevin Nicholson is the co-CIO at RiverFront Investment Group Global Fixed Income. We look forward to when both of you return--