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Market Recap: Tuesday, February 23

Stocks reversed earlier losses on Tuesday, and the S&P 500 and Dow traded higher.The S&P 500 was on track to end a five-day losing streak, shaking off earlier losses. The Dow erased losses of as many as 360 points, or more than 1%, to push into positive territory Tuesday afternoon. President of Levin Easterly Partners, Sam Hendel, and Chief US Economist at UBS, Seth Carpenter, joined Yahoo Finance Live to discuss.

Video Transcript

ADAM SHAPIRO: Tuesday is just another way of saying three days until Friday. Seth Carpenter is chief US economist at UBS. Sam Hendel is president of Levin Easterly Partners. They are going to take us to the closing bell. Seth, I'm going to start with you. Everything we're watching in these markets, when we look at the different cycles that we've experienced in the past, this cycle we're in, this one's different why?

SETH CARPENTER: Very, very different because nobody has had an experience with a pandemic like this before. I mean, I think the key is over the next couple of months, watching how COVID cases fall, watching how hospitalizations fall, watching how the vaccine rollout continues. I think when the average consumer feels much safer, much more confident with where things stand, we're going to see a real comeback in spending by consumers, especially on services. And that's going to be a real change I think this time around.

SEANA SMITH: OK, Seth and Sam, hold on one sec. We want to bring in our markets reporter Ines Ferre for a closer look at some of the movers in the final minute of trading. Ines.

INES FERRE: And, Seana, just taking a look at the NASDAQ, where we have seen most of the action today, definitely off those lows from this morning when the NASDAQ was down more than 3%. You can see that Tesla earlier this morning had been down more than 10%. It looks like it will finish the session off by about 2%.

Apple had been down about 5% during the lows of the session earlier this morning, a move it hasn't seen since late October. But it looks like it will end flat for the session. Also we're looking at Amazon, some of these big cap names that had been in red territory, flipping into the green in the last hour of trading.

We're also taking a look at the Dow to see what's happening there. The Home Depot down more than 2 and 1/2%. The company didn't provide formal full year guidance in its release for its fourth quarter results because it's not sure how long this pandemic will take, how consumer habits, spending habits will be. And therefore, the stock's getting punished. You're seeing Disney today up more than 2%. Some of the reopening trade, some of the travel trades are in the green. Here is the closing bell for today.

[BELL]

SEANA SMITH: And that does it for the trading day today. Again, as Ines was saying, we saw some buying action into the close. The Dow was off over 300 points earlier today, ending the day in the green, just barely, though, with the Dow up 13 points. S&P back in positive territory as well. The S&P was up just around 1.8% earlier today. It's now ending up just around 5 points. NASDAQ, though, didn't get a big enough boost here in the final hour of trading, ended the day off just around a half of a percent. We've seen some pressure on some of those big tech names as yields continue to rise.

Some of the buying, though, in the final hour of trading fueled by comments that we heard from Fed Chair Jay Powell, who was basically saying that the rising yields actually show optimism. It's encouraging just in terms of what we're seeing for of the economic recovery. He also reiterated the fact that he expects growth to pick up here in the relatively short term. In terms of the sector action today, technology and consumer discretionary, those two are the laggards. Energy today's leader.

We want to bring back in our panel. We have Seth Carpenter of UBS. We're also joined by Sam Hendel of Levin Easterly Partners. Sam, let me just throw it over to you first. I mentioned the fact that we're seeing higher yields, pressuring some of those big tech names that we've been talking about. That's been the case over the last couple of trading sessions. I guess, the big question is, is this a start of more pressure on some of these big tech names?

SAM HENDEL: Yeah, I think what's interesting here, this month is actually the largest outperformance of value versus growth in the last 20 years. But I do think that low rates are certainly putting pressure on value. But really, in the last two years, you've had this huge increase in multiples of growth stocks versus value.

So we're sort of seeing a really nice sweet spot for value stocks that we think have been left behind, in particular, in regards to there aren't that many things to invest in. Growths had this huge run, and rates are so low that there aren't that many places to find yield. So we still think that value has a lot of legs.

ADAM SHAPIRO: So, Sam, I want to follow up on that about value. Because you can tell in high school, I was the guy who did the Cliff Notes. I want you to do the work for me. Russell 2000 right now-- I'm looking at my Yahoo app, and it's up. Yahoo Finance app says it's up 13% year to date.

So I would assume the Russell 2000 underperformed for so many years that you can find value stocks there because they're undervalued just by price. But shouldn't I be diving in deeper to find out what are the companies within that index doing that would make me want to be a long-term holder?

SAM HENDEL: Absolutely, and just because companies are cheap doesn't mean they're very interesting. So I don't think it's just putting up a screen and saying, here are the cheap companies, here are the more expensive companies. Let me invest. It's all about doing deep dives into the stocks.

And for me in particular, and our firm, we're looking for catalysts that can unlock some of these cheap stocks that are out there. And so I think it really is key to have stories and things that we can predict that are going to happen in the future to unlock some of this valuation discount. And I certainly don't think-- I think it's using a scalpel, not using a broad brush stroke on cheap stocks, and doing it that way.

SEANA SMITH: We have some breaking-- or we have some breaking news. We have earnings results from Intuit, I believe. Emily McCormick is standing by with those results for us. Emily.

EMILY MCCORMICK: Seana, we're taking a look at some mixed results here from Intuit. They did beat just slightly for their fiscal second quarter results. Guidance for the third quarter was a big beat, but they did maintain their guidance for the full year, when some analysts had been expecting them to actually improve that outlook on the top and bottom line. Now going through these numbers, we had fiscal second quarter adjusted earnings per share coming in at $0.68. That was down year over year, but still a beat compared to estimates for $0.67 a share.

Now net revenue of $1.58 billion-- also down about 7% year over year. But again, just a tick above consensus estimates for $1.57 billion. Now, taking a look at their third quarter forecast, so the forecast for the current quarter, the company sees revenue of $4.61 billion to $4.66 billion, a massive beat compared to consensus estimates for $4.38 billion. And their outlook on the third quarter adjusted earnings per share also a beat, at between $6.75 to $6.85.

Now I also want to finally take a look here at their full year forecast. The midpoint of their adjusted earnings per share outlook of between $8.20 and $8.40 did miss estimates for $8.38. We are seeing shares of Intuit under a bit of pressure here in late trading as a result of this. But overall, again, a bit of a mixed report here from Intuit, Seana and Adam.

SEANA SMITH: Intuit shares off nearly 3%. All right, we want to get back to the big story of the day, and that, of course, is the comments that we got from Fed Chair Jay Powell. The one thing that investors were closely listening for, Seth, was any comments on inflation. The Fed has long been saying that the rise in rates, they don't see it as problematic. My question, though, to you is, do you see it as problematic? Is it problematic?

SETH CARPENTER: I mean, I think so far, the sell-off in rates hasn't been too big of a problem. It depends on the time horizon you're looking at. I think there was a bit of scare in markets last week because we started to see more of the move coming in real yields. And if that were to go too far, then I think it could potentially cause some issues for risk assets. And I think the real concern is, if it goes so far that it starts to impair the recovery, then it becomes a problem. So far, I think we're in good shape. But it's something absolutely to watch. The Fed, as you pointed out, though, seems to be very, very unconcerned about the rising yield so far.

ADAM SHAPIRO: And Seth, one of the things you pointed out skillfully is that we can have head fakes. And when you do this day to day, as we do, we look at the data that comes in day to day-- retail sales, for instance. But you point out, be careful. There are head fakes there, and there may be another one coming with tax refunds. Explain this.

SETH CARPENTER: Yeah, so economists love to seasonally adjust the data month to month. Different things happen different months on a regular basis. And you wouldn't want to be surprised that vacationing at the beach in the month of February is low. That's sort of the standard order of things.

And so what we saw with the last retail sales report for January was a really big positive report, but that was because the decline in retail sales from December was much, much, much smaller than it normally is because it turns out last December just wasn't any great shakes when it comes to normal retail sales spending. And so that really seemingly strong January print probably-- that just probably absolutely overstates the strength in consumer spending.

Now if we think about what we're going to get in February, well, most February's are when people get their tax refunds. And a chunk of that goes into spending. Tax season has been delayed this year by at least a couple of weeks. Refunds going out of the door from the IRS have been on the low side. We could be lower by about $100 billion of refunds this year than usual.

And if the seasonal adjustment factor, the one that compares this February to normal February, says, wow, there's less spending this February than there normally is, that's going to look like a terrible print. And I think that's going to be worrisome. It's not going to change my view on the underlying economy. And so that's the kind of noise we want to start to look through.

SEANA SMITH: Well, and then, Seth, to follow up to that, then, we were just talking about in the last segment, that number of economists coming out, raising their GDP forecast, I'm not sure whether or not you have raised, I don't believe yet, just in terms of when we look at the rest of the year. But then are they doing that prematurely, if that could be the case, in terms of some of the risks that are out there?

SETH CARPENTER: So, no, I don't think so. I think a couple of things have become clear over the past month or two, so in particular, the fiscal package that's being debated now. When we came into the year, now President Biden was saying how he wanted to go a bipartisan route. And so we assumed that-- initially assumed that that was going to mean a much smaller package. But it's become more and more and more clear that the Democrats are going to go on a partisan basis using reconciliation for a much larger fiscal package.

But that's been known now for a few weeks. And so what we've said is, yeah, that's going to matter. That's probably going to push GDP growth for the year above where Chair Powell was. We think it'll probably have a seven handle on it. But I don't think that underlying story is the sort of thing that these monthly data are going to inform you very much on. That's a fundamental story about the COVID cases coming down, about the vaccine rollout coming, and then about the fiscal policy really supporting growth as the economy starts to open up.

ADAM SHAPIRO: Sam, I want to bring this discussion to something we can all-- what they used to say, the known unknowns. This is something we know-- energy prices. Energy is on a tear. The sector has been up, up, up, up. Oil today, I think, around $62 a barrel. And you point out the Texas situation, but is energy-- is it time to get energy back into your portfolio?

SAM HENDEL: Yeah, I think the challenge to energy, one, the companies have been very poor allocators of capital. I'm hopeful that they've gotten religion after 2015, and then last year, and all the commentary from the companies are that they're going to be very cautious about adding more production and really focus on cash return to shareholders.

You also have the ESG component of energy that the cost of capital for these companies that are pumping out hydrocarbons has gotten more expensive. And they're all really trying to pivot and have emissions targets, focusing on net zero, and figuring out ways to sort of participate in the new economy.

And for the super majors, they're actually investing in wind farms and solar projects. And I'm not sure that's going to play very well in the market because their returns aren't as high. And then you have the EMPs who are much more focused on just on return of cash to shareholders. And I think that's going to be a big benefit to holders of these energy companies. As the price goes higher, there's some restraint on the Capex. And I think you're going to see that accrue to shareholders.

SEANA SMITH: Seth, I want to get your thoughts on the housing market. It's been one of the areas of the economy that has been so resilient over the past year. We just got another strong report out from Case-Shiller this morning in terms of home prices. What are you expecting to see on that front going forward?

SETH CARPENTER: So the housing market absolutely is on a tear. We've got low interest rates. We have the middle and upper end of the income distribution fared far better during the downturn than the middle and the lower end of the income distribution. And so, there's a lot of demand there. And then the number of people in that sort of first-time homeowner, home buyer H bracket is larger, and it's going to stay there for a while. So there's some real strong fundamentals there for the housing market.

I think on top of that is people are trying to reassess where they want to live following the pandemic, in cities or not in cities. That can also be a little bit of a tailwind to single family homes as well. So we're pretty constructive on where the housing market is going for the near term.

ADAM SHAPIRO: Seth Carpenter is chief US economist at UBS. Sam Hendel is the president of Levin Easterly Partners. Sam, I just gotta let you know, when you said the energy companies get religion, I wanted to say, can I get an amen, please? Both of you, thank you so much for joining us.