Market Recap: Monday, May 10

Stocks traded mixed on Monday, with technology stocks under more pressure as investors weighed the risks that higher inflation during the pandemic recovery might weigh on high-growth names. Tracie McMillion, Head of Global Asset Allocation at Wells Fargo Investment Institute and Robert Dye, Comerica Bank Chief Economist joined Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

ADAM SHAPIRO: About 2 and 1/2 minutes to the closing bell. Helping us get there today, we have Tracie McMillion, Head of Global Asset Allocation at Wells Fargo Investment Institute, as well as Robert Dye, Comerica Bank's Chief Economist. But it's Jared Blikre who's going to sprint us to the closing bell. Jared.

JARED BLIKRE: Well, we're going to sprint, but I don't know if I have the best of news. We're sinking into the red. The Dow had been the leader of the day in the green. The S&P 500 largely in the red. But now the Dow, up 250 points before, is in the red.

Here's a look at the intraday price action, and we'll just take a look at the NASDAQ next. Not any big news on the horizon. But I'll tell you what, we've got to pay attention to this, because for the last couple of weeks, actually a little bit more than that, we've been tracking the declining breadth in the NASDAQ. And you can see it's down 2 and 1/2% right now.

But looking inside the NASDAQ 100, we can see the mega caps under a lot of pressure here. Amazon is now down 3%, Facebook, 4%, Tesla, 6%. So a bit ominous after that "Saturday Night Live" appearance. And I don't know if we can get to Dogecoin, but I'll try.

Pinduoduo is the worst performer, off 9/10 of a percent. That's after the leader there was summoned before Chinese authorities, saying that they have to protect customer interests more. And we're also seeing a lot of weakness in the chip space. Lam Research that you just saw, down 7%. AMD down 3 and 1/2%. And Qorvo, Qorvo's down 7% after it looks like Apple is going to be developing its 5G broadband chipset a little bit earlier than usual.

So just checking in on some of these China shares, we got JD.com down 5%, some of these others down even more. But I'll tell you what, when you take a look at the Dow, it's a little bit of a brighter picture. We're seeing some green there. Verizon in the upper right, our parent company, is up more than 1%. Honeywell's up 1% as well, so is J&J. So we do have some leadership in the value cyclical and also some of the health care names.

Now here is the banking sector. We had seen most of this in the green earlier, still a few green names here, but starting to take on some colors of red. And finally, before we hit the closing bell, energy has really turned south. This had been one of the best-performing sectors after that-- after the pipeline incident that we've been talking about, the ransom event, now sinking into the red. And here's that closing bell, guys.

[BELL RINGING]

SEANA SMITH: And that does it for the trading day today. The Dow giving up its gains after hitting an intraday record. The biggest decliners in the Dow include Intel, Visa, and Apple. Those three stocks are the worst performers in the Dow today, all off more than 2%. You can see the Dow closing down 32 points, S&P off just around 1%.

The NASDAQ was the big decliner all day, the biggest underperformer, I should say, closing off 350 points. That's good for a 2 and 1/2% drop. Some of those big tech names, Facebook, Alphabet, Tesla, like Jared was just mentioning there, amongst the biggest decliners today. Sector-wise technology, no surprise there, communications services, and consumer discretionary leading today's declines.

We want to bring back in our panel. We have Tracie McMillion. We're also joined by Robert Dye. Tracie, let me just go to you first, because we had the Dow up more than 250 points. We saw some selling action into the close. The NASDAQ closing off more than 2 and 1/2%. What do you attribute today's selling action to?

TRACIE MCMILLION: So we think that's probably related to investors taking some profits here. So far this year, the S&P 500 is up double digits. There is a number of stock in the market that are also up significantly so far this year. So probably investors just seeing some red in the NASDAQ and taking some profits across the board.

ADAM SHAPIRO: Robert, nobody ever got poor taking profits early, but we've had a lot of analysts tell us get ready for a 10% pullback. Is this the beginning, do you think? Or are we not there yet?

ROBERT DYE: Well, that's certainly not predictable. But-- but what I would say is after the jobs number on Friday, a little bit of a miss with-- given the stratospheric expectations, I think just a reminder that this economy is well juiced, but it's not necessarily a moonshot. And I think there is going to be some volatility out there. This is a highly, highly artificial economy right now, and we're going to see some strange things. And I think investors are probably a little bit smart to take some of those profits right now

SEANA SMITH: Robert, you mentioned the fact that it's a highly unusual economy, we're going to see some strange things. Can you give us just some idea of what you expect or what you could put-- potentially we could see over the next couple of months?

ROBERT DYE: Well, right. Well, one of the big questions, of course, is how does the Fed respond to all this inflationary pressure out there? And how long can they hold on to this concept of being transient before they have to start saying we're going to either pull back on quantitative easing, asset purchases, or we're going to have to start raising the Fed funds rate? They're going to telegraph that well in advance, but I don't know if they're going to be able to hold out to the end of this year, like some on the Fed have implied.

ADAM SHAPIRO: You know, Tracie, when we talk about the Fed, for so-- it's almost-- it's more than a decade, they've just not got inflation correctly. Why should we expect them to get it right this time, because look, we're all paying more for everything right now, and they tell us it's transitory?

TRACIE MCMILLION: Yeah, well, we think that it is going to be difficult for the Fed to support higher inflation at anything that resembles a lasting inflationary environment. We do think that they are right to say that it is transient. There's a lot of money coming into the system right now.

A lot of people are getting vaccinated, going back out, and there's a lot of demand just being pushed through the system all at once. So we do expect, you know, it's probably 3%, 4% inflation this summer, but then it should start to taper off as a lot of this demand just works its way through the system. So we do think they probably have it right here.

SEANA SMITH: Tracie, we've seen some quick rotations here between growth stocks and cyclical stocks. Where are you finding the most opportunity now?

TRACIE MCMILLION: So we see opportunity in both growth and cyclicals, but we would be fading defensive. So we think that there's still room for information technology, communication services to perform well through the end of the year. We also think that industrials, and materials, and financials should perform well in an environment where there is additional demand, some inflationary pressure, interest rates rising a bit.

ADAM SHAPIRO: What dangers do you see, Robert, for investors who leave the money on the table right now, especially with-- I mean, Janet Yellen, as you pointed out, it was an unnecessary foul when she surprised financial markets last week. What risk do I have if I try to ride this out without at least protecting some of the assets?

ROBERT DYE: Now, that's a great question. Because so many unusual things are happening right now, I don't think this is a sell in May and walk away type summer. I think this is a summer coming up where we're going to have to pay attention because things can shift quickly. One thing that's being discussed right now is the extension of enhanced unemployment benefits through September, and that seems to be adding some friction to the job market now.

And maybe that will change this summer. Maybe Fed policy will change. Maybe the evictions moratorium will come back or go-- go away. That's-- that's pending right now. So there's just an awful lot of special policy up in the air right now that can change very, very quickly with significant economic consequences.

SEANA SMITH: Tracie, we have the major pipeline in the US remains mostly shut down right now. There's talk that hopefully we'll be back online by the end of the week. But from an investor's perspective, how are you looking at this just in regards to the greater risk that this could potentially pose to the markets down the road?

TRACIE MCMILLION: Sure. It is definitely something that is on the radar of many companies. And you know, because this happened, that probably signals that companies are going to be spending more for security. So, you know, that is another thing that market participants could be thinking about today, that expenses could be rising for companies in order to secure their cyber networks.

ADAM SHAPIRO: Tracie, when-- when we talk about spending, consumer spending surged, it's been surging all year. But if we're seeing people having to pay more, even if these benefits are going to drop off in September, the extra unemployment benefits, it seems to me like we'd see a slowdown in spending, and then subsequently a slowdown in overall economic performance. 70% of the economy is people spending stuff.

TRACIE MCMILLION: That's exactly what we expect to happen. So we think that this quarter's probably going to see about 12% growth, but for the full year, about 6%. So we will start to taper off, but still see really strong growth here for this year. As spending kind of works its way through the system next year, it's probably back to that 2% to 3% growth level again.