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Market Recap: Wednesday, September 29

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Stocks traded mixed on Wednesday, with the S&P 500 and Dow ending higher as Treasury yields steadied near multi-month highs. Shawn Cruz, TD Ameritrade Senior Market Strategist and Larry Cordisco, Portfolio Manager of the Osterweis Growth & Income Fund joined Yahoo Finance Live to discuss.

Video Transcript

- Taking us to the closing bell today, Shawn Cruz, TD Ameritrade Senior Market Strategist, and Larry Cordisco, Portfolio Manager of the Osterweis Growth and Income Fund. Larry, let me start with you on something, and we may have to finish this on the other side of the bell, but why are the chip-makers down given the demand for semiconductors?

LARRY COEDISCO: Well, one of the things that came out on Micron's call last night was that they don't expect to increase wafer production for any given period of time, I think two or three years, they said. So it's little signals like that that go out to the market. And frankly, people are already pretty skittish on the chip sector. It's been an underperformer for the last quarter or two. So that's just a little extra fuel to the fire that has dampened enthusiasm for AMAT today.

- All right, well, there is enthusiasm to get this trading session closed. And we're going to have the closing bell in 45 seconds. So let's take a break to see where we're setting up. The Dow right now, it's off it's session highs, it's up about 93 points. S&P 500 is off its session highs as well. Remember yesterday, the S&P 500 closed down 2%. Today, it looks as if we're going to close up about six points. And then the NASDAQ it is going to continue its decline. It was off 2.8% yesterday, looks like it will fall 37 points today. Jared was telling us about money going into defensive stocks and the utility sector up one 1 and 1/4%. But right now, here's the closing bell

- And that wraps up today's trading day. Again, a totally different picture than what we were looking at yesterday at this time. We have the Dow and the S&P closing in the green, although just barely. The Dow well off its highs of the day, up just around 90 points. S&P holding on to gains, and NASDAQ slipping back into negative territory in the final 60 minutes of trading, closing off just about a quarter of a percent. We have Shawn Cruz and Larry Cordisco here to help us break down the action that we're seeing.

Shawn, the leadership that we're seeing today is coming from a lot of those defensive sectors, utilities by far the leader today, staples, health care, real estate outperforming. Does this mean that this slight bounce that we're seeing today that this is likely going to be short-lived?

SHAWN CRUZ: Yeah, I think that is really what you want to look at when we get into volatile periods like we've been in pretty much since the start of last week, a little bit before. When you start getting into those highly-volatile periods, when you do get rallies, you want to look and see where that leadership is coming from, what sort of breadth you actually have behind that rally.

And if you look at what we saw today, a lot of those large names were lower or somewhat flat, and you just weren't getting that feel that it was more or less a broad boost out of equities. So I do think that does put-- you know, the rally we've seen, it's not anything to completely disregard, but we're still on some shaky ground here, and I would expect choppiness and some volatile trading in the days and weeks to come.

- Shawn, with what we saw yesterday. You know, yields going higher on 10-year, and then we saw the sell-off in some of the big tech companies. And I had asked Larry about what was going on with the chip-makers? Is this now a buying opportunity, or is there going to be more destruction for the chip makers going forward, do you think?

SHAWN CRUZ: Well, yeah. I think, the outlook really there's a few things that are impacting chip-makers right now. Some of the rise in COVID outbreaks in some very important countries where they have a supply chain relationships have led to some factory shutdowns, there's also some of the outlooks that we're not just hearing from the chip-makers, we're hearing from a lot of companies across the board. And that is pricing, supply chain bottlenecks are really going to impact their businesses moving forward, and you're starting to see confidence in some of these outlooks start to soften up a little bit.

So you can use this as an opportunity to maybe go out there and buy some names that you've had an eye on. But maybe don't go all in at once, just understand that there's probably going to be some volatility that's going to have to shake out here moving forward until we get a more clear picture of what the future holds for a lot of these names.

- And Larry, you look at the pullback that we've seen more broadly speaking in the month of September, you have the S&P and NASDAQ on track for the worst months in about a year, how are you playing this pullback? Is it time to put money to work? And what are you buying?

LARRY COEDISCO: Well, that's a great question. You know, I think the market is struggling with two interrelated questions both in the short term in the long term, and they tie to growth and inflation. And that's why you see these rotations the defensive days, and some days you see rotations into more offensive days. And frankly, I think it's really hard to know where the economy's going.

It could be 70s-style stagflation according to some people, 90s-style pro-growth inflation, or something that looked like the great financial crisis, you know, post-period where you had low growth and low inflation. It's an unknown. And because of that, I think the easiest thing for investors to do is-- and what we think about doing is trying to marry strong secular tailwinds in certain industries with market leaders. I think that's probably the most favorable risk-reward strategy that you can adopt in this kind of market.

- Larry, who are some of those? I mean, I know that one of the stocks you like is Google.

LARRY COEDISCO: I do, but actually I'd like to go back since we were talking about chip stocks. If I could, I'd like to go back to AMD as a name I saw on your screen a moment ago. If you think about the secular trends they're tied to, especially in the data center, we know that cloud computing continues to grow at 40%, 50%, 60% with some of the cloud vendors. And AMD's becoming a larger and larger player.

They're taking share from Intel and GOBS. They've gone from 0 to about 15% share. And over the next three to five years, we think they can get the 50% share, and the key reason is they just have a better architecture. There's a lot of focus on Intel's missteps in the market, but the fact is AMD is getting share because they make a better chip. And that's just going to continue for a long time.

So when you think about that secular trend in computing growth, and then you have an emerging market leader like in AMD, that's a really powerful combination for earnings growth regardless of whether or not the economy is growing in a strong real rate, or interest rates are high or low. In the long run, really investing in that trend we think would pay off with a company like AMD.

- Shawn, what do you think? Where are you seeing value?

SHAWN CRUZ: Yeah. I think right now, some of these tech names, like I said, they're going to go through some periods of volatility. But I don't think they're necessarily-- their businesses are going to fall apart or their companies are going anywhere. And I think there's probably quite a few people who were looking at Microsoft recently, Google, Amazon. You can look at some of the strong names, and maybe don't put everything you have directly focused in those.

But if there's some of those names that you were looking at when they were on some of these highs recently, this is maybe an opportunity to go in and buy some of those. But certainly, I think Microsoft is an interesting name to be in. Amazon is also one that I would be looking at. And then even Apple I think could be worth another look here.

Some areas that maybe I would avoid though would maybe be some of those energy names, and they have one, although crude oil is on quite the tear right now. There's a lot of regulatory issues going on there, there's a lot of other issues just with structurally within that industry that I think after the rally they've had recently maybe set them up to be a little bit more of a offset of the risk-versus reward. I think there's more risk than reward in some of those names. But some of these bigger tech names, this may be a good opportunity.

- You know, two weeks ago, everything we were talking about was Evergrande and China. Shawn, are there things that are happening in China, which take the shine off of that as far as an investor and keep it here at home, the investment dollar?

SHAWN CRUZ: Yeah. Well, I think that was one argument that some analysts were making and pointing out, was you know, look, yeah, there is maybe going to be some capital leaving China because that looks like the Chinese government is really starting to tighten things up a little bit there on the regulatory side. And I think that's why you're seeing such a rally in dollars, the yuan selling off, dollars really moving higher as people move in to dollar-based assets.

But I think the US based companies, you can't deny that that was an important growth market for them, but these US-based tech names have a very diversified global footprint outside of China, and there's a lot of business spending going on here domestically on the tech side of things as well, a lot of the investment in that side of the business has come to try and optimize digitally. So I think that makes names like Microsoft definitely one of those names that I think is worth taking a look at here.

- Larry, how about what's going on here at home because deadlines that lawmakers are facing right now with avoiding a government shutdown, with raising the debt ceiling? How big of a risk do you see that being posed to the market, at least at this point?

LARRY COEDISCO: Well, it's certainly a short term risk. And we've seen this a couple different times over the last 10 to 12 years. It's not a positive for the rest of the market, it creates a lot of uncertainty, and I think it's happening at a time when there's a lot of other volatile contributors to the backdrop, right? The Fed tapering is one example. And of course, this whole debate over whether or not growth has peaked or paused.

So I think it adds to the mosaic or a litany of concerns that the market is dealing with. Ultimately, I think it'll get worked through, it typically does. And I don't view it personally as a reason to not buy or buy stocks any given day. It's really too volatile to predict.

- Larry Cordisco is the Portfolio Manager of the Ostroweis Growth and Income Fund, and Shawn Cruz is TD Ameritrade Senior Market Strategist. Thank you both for joining us here on Yahoo Finance.