Market Recap: Thursday, June 17

Stocks traded mixed on Thursday as investors contemplated the Federal Reserve's latest monetary policy decision and updated projections. Jeff Powell, Polaris Wealth Advisory Group CIO and Bill Smead, Smead Capital Management CIO and Co-Portfolio Manager joined Yahoo Finance to discuss.

Video transcript

ADAM SHAPIRO: Let's take a look at where we stand but, first, introduce our guests, who are going to help us recap what has happened with the closing bell. Jeff Powell is Polaris Wealth Advisory Group CIO, and Bill Smead is Smead Capital Management's CIO and co-portfolio manager. Good to have you both here. Shana, you want to run us through the numbers, please?

SEANA SMITH: Yeah, Adam. Taking a look at where things stand, we saw the markets under pressure, at least for the Dow, for most of the trading day. You can see the Dow closing off just around 210 points. Big decliners in the Dow today, Dow Inc and Caterpillar. Both of those names of just around 3%. The S&P closing just fractionally lower, but a lot of those losses attributed to material stocks. You can see that obviously in Dow Inc and Caterpillar, but the materials sector amongst the hardest hit.

The NASDAQ, however, eking out gains. You can see the NASDAQ up 9/10 of a percent. That's 121-point gain here for the major average. Tesla, Snowflake, among the out performers there. Twilio also up just around 5%.

Bill, let me bring you in the conversation first because I think investors are still trying to wrap their heads around the update that we got from the Fed yesterday. And still looking at the Dow, you can see investors are a little bit spooked about the fact that we could potentially see a rate hike or a couple of rate hikes as early as the end of 2023. How are you thinking about this and the impact that this could potentially have on the strategy going forward?

BILL SMEAD: Well, thanks for having us. We think that inflation is inevitable, and we think that inching their way toward getting ahead of it isn't getting ahead of it. And the stock market's interaction with inflation is a series of fits and starts, and so you saw oil correct today. You saw copper and other commodities.

We're coming off historic low prices six months ago in commodities compared to common stocks. We're coming off 60, 80, 100-year spreads in favor of price earnings ratios to commodities. Commodities are more volatile asset class, therefore when they correct, they correct violently, and they go up violently.

ADAM SHAPIRO: All right, let's do this because we've got Jared on the floor of the New York Stock Exchange. Jeff, we're not giving you any disrespect. We're going to bring you in because I know you have some insight into opportunities as we go forward. But Jared is going to recap what we've witnessed today. Jared.

- Yeah, it looks like the WiFi Interactive is dead, so I'll just do it from memory. Huge moves in the dollar. You look at the Dixie, and it is just surged over the last two days coming off of multi-month lows. We've tested areas that we trusted in 2020 earlier in the year and also from 2018.

So I'm just wondering, given that and also the volatility in the bond market, my question is for Bill. What do you expect? What do you see in these moves because we've seen the value in cyclical trade kind of take a backseat except for energy to the more growthy names?

BILL SMEAD: Would you like me to respond to that?

- Yeah. Yeah. Yeah, I was asking you a question, Bill.

BILL SMEAD: The great irony of all this is that interest rates are incredibly low in relation to inflation that we've already got, and what we know from the '70s about inflation that picks up on the back of fighting a war in Vietnam and a great society move in trying to help those less fortunate, you follow that up with a disruption from Saudi Arabia in 1973, '74, and you let a giant cat out of a giant bag. So it is amazingly ironic that interest rates went down on them saying that they're having to move ahead on fighting inflation, and so it's kind of bizarre. And then the other great irony is the interest rates are incredibly low, so what did people buy today? They bought the stocks that benefit the most from the ultra low interest rates, which is the technology stocks.

ADAM SHAPIRO: All right, Jeff, we want to get to you, and I'm going to let you have free reign if you want to talk about what we've been witnessing in the discussion regarding this, the interest rates and how it's impacting, or do you want to get to where you see opportunity because you've pointed out that industrials have opportunity, but there's also opportunity in tech and health care?

JEFF POWELL: Yeah, I mean, I think that's what a lot of you saw today. I mean, obviously, interest rates are very low. Having the Fed has say that they're not going to raise rates for upwards of a year and a half is definitely interesting. The thing that I always kind of look at within this, though, is that we are coming off of a historic drop in our economy too, and so we're-- our economy is not back to where it was pre-COVID.

We're still trying to recover from that. You still have global issues with supply chain and a number of other issues that are outstanding, so as much as it would be nice to sit there and try to stay in front of what is perceived to be a huge inflation push, the inflation push may not be there. As soon as we see stimulus leaving our economy, that's very possible to see a lot of what we're fearing go away, which is, I think, a lot of what the Fed is dealing with right now.

But, yeah, there's been a huge leadership change. I mean, kind of shifting gears to your second question, there's a lot of opportunity out there. If you're looking at just purely of value play, Europe, in particular, is looking very interesting with regard to the fact that they're just now releasing their stimulus, which is part of the reason why the dollar is actually rising right now is that you've seen stimulus starting to pick up in Europe, which is obviously pushing down the value of the euro compared to the dollar.

The also-- the very interesting thing there is how much money. They had to furlough program, and so the amount of savings that went on in Europe was significant with a lot of pent up demand. And as you start to see vaccinations become a higher percentage in Europe and an opening there, we expect to see some pretty amazing things going on in Europe as well as in some of the growth opportunities here in the United States.

SEANA SMITH: Jeff, help us make sense of what's going on the 10-year because we saw a pop yesterday after we got the Fed decision and the comments from Jay Powell, yet we're seeing the 10-year off just around six basis points today falling closer to that 1 and 1/2 percent. Are you expecting us to, I guess, trade a little bit sideways when it comes to the 10-year, or will we eventually see another pop?

JEFF POWELL: Yeah, I mean, a great question because so much of this is being driven by sentiment right now, and so I think the more we're going to see some difficulty finding some true leadership and which direction it will go, probably trade sideways for a little while as we see it.

ADAM SHAPIRO: Hey, Jared, what's your final thought from the Stock Exchange?

- I think we've been talking about the Fed just enough. It might take a few more days to sort out the market's direction. I'm going to be laser focused on the dollar in bonds, but let's keep in mind this is the most seasonally-- one of the most seasonally weak parts of the year, this particular half of the month into the month of July. Not a lot of earnings going on. Not a lot else to talk about, so my big thing, my big takeaway, is we've got to wait a little bit.

ADAM SHAPIRO: I think I just got interrupted by the producer, Jared, so I'll say thank you. Also want to say thank you to Jeff Powell, Polaris Wealth Advisory Group CIO, and Bill Smead, Smead Capital Management CIO and portfolio manager.