Stocks slumped Thursday after another technology-led selloff on Wednesday. The Nasdaq ended lower by more than 2%, extending losses for a third straight day after the tech-heavy index dropped 2.7% during the regular session on Wednesday. At session lows, both the Nasdaq and S&P 500 erased gains for the year-to-date. The Nasdaq also briefly dipped into correction territory intraday before paring some losses, dropping by more than 10% from at recent record closing high. Carillon Tower Advisors’ Matt Orton and President of SS&C ALPS Advisors, Laton Spahr, joined Yahoo Finance to discuss.

Video Transcript

SEANA SMITH: Selling pressure across the board today. We have a couple of minutes to go in the trading day. We want to bring in Matt Orton of Carillon Tower Advisors. Also joined by Layton Spahr, president of SS&C ALPS Advisors. Thank you to you both for joining us. Matt, first, to you. Just this downward movement that we're seeing in stocks today, coming on the heels of the comments that we got from Jay Powell earlier, spooking investors. He's not worried about rising rates. Are you worried about what we're seeing play out in the bond market?

MATT ORTON: Well, great to be back, Seana. And the answer is no, I'm not too worried about what we're seeing happening in the markets right now. I've been saying for a while that we've been a little bit extended in the equity markets, and they are more vulnerable to these types of pullbacks. And growth does not come without a risk. And I think that's what a lot of investors are starting to learn. But on the flip side of this is that we're seeing some significant drawdowns in stocks that look very, very attractive.

So some information technology stocks that have very, very good earnings that have posted incredibly strong Q4 earnings results, strong guidance going forward, I think those look attractive to potentially reload, if you've missed them or you're looking to reallocate. But the move up in rates also provides, and I think reinforces, the case to be in certain more cyclical areas of the economy that we've liked for some time, such as financials and especially the money center banks that are able to do better with net interest margin and are also benefiting from the activity in financings, IPOs, SPACS, and all of that.

ADAM SHAPIRO: Layton, stand by, because I want to get a question to you about bond market weakness. But I got to get to Jared Blikre because a lot of us are still holding on to our stomach, almost lost our cookies with the trading action today. Jared.

JARED BLIKRE: Yeah, the bond market is really disrupting the equities market. So let's take a look at the charts here. We are off the lows, but still looking at some heavy losses, NASDAQ down over 2%. Here is the four-day price action. This goes back to Monday, and you can see off about 3 and 1/2% in the week to date.

And let's take a look at the bond market because that has been the source of consternation all day. We have the 10-year T-note yield rising eight basis points. We were talking earlier about something that happened in the bond market yesterday, akin to oil prices going negative. Suffice to say, it shouldn't happen, but yet, it is, perhaps forcing the Fed's hand sooner than they would like.

Now here is the VIX. We can see this is elevated as well, well off the highs, but you can see it spiked up to the highest levels that we've seen since February. Here's a look at the US dollar index. That is strong as well, now taking out these fibrillary highs. And so we go back six months here, we're going to see maybe we're in a new uptrend. And that would not spell good things for the risk markets.

So let's take a look at our NASDAQ 100 heat map, as we head into the closing bell here, the final minute of trading. And communication services, which includes Alphabet and Facebook, those two green boxes on your screen, that is doing fairly well today. But everything else just taking some hits. Apple and Amazon down over 1%, but the really big losses concentrated in some names like Western Digital. We got PayPal down 6%. Applied Materials, Pinduoduo, Okta, after its earnings, all down 6% or more.

And just taking a look at the semiconductor space, seeing a lot of dark red here, too. Micron's off 5%, AMD down 4%. So, tech, the mega caps, and also semiconductors and software all looking really weak right now. Here's the closing bell on Wall Street.

[BELL]

ADAM SHAPIRO: That's one for the books. Let's see where we're going to settle on Wall Street. The S&P 500 is going to settle down about 50 points. The Dow is going to be off roughly 360 points, with the NASDAQ finishing down 274 points. Sectors today, the only sector that's going to close up is going to be energy, up 2 and 1/4%. And along those lines, let you know that one of the only two Dow components that's going to close in the green today. Chevron is going to close up almost 1%.

I want to go back to our guests, and I want to bring in Layton because it was this discussion from Jay Powell that set everybody off. And we keep talking about inflation, but we also keep pointing out, you know, if there's real inflation, I just got to tell you, gold-- I've got-- I pulled it up here on my Yahoo Finance app. Gold year-to-date is down 12%. Gold is at home and bed. What inflation are we talking about?

LAYTON SPAHR: Yeah, I mean, we haven't seen real inflation for more than a decade. And we've had these fears around inflation. We get to sell off in bond markets. And, you know, the lesson of the last decade is that you buy these fears. And what's going on right now is that correlations have gotten to the point where bonds and stocks are correlated together. That's normally not the case.

And so, it forces investors to start taking exposure down. So they sell a little bit of everything. And the things that have worked the most lately are usually the most popular places to get liquidity from. So the fear of inflation, I think, is more tactical, and it's associated with a really robust global GDP recovery that we have. It's hard to slip a difference between what's inflation and what's real growth. I think this is real growth. I think inflation is still secularly low.

And there's a lot of opportunity to take advantage of this volatility to broaden outside of some of the core growth stocks, right? That's been the concentrated trade for a long time. There's a lot of other places that benefit from global growth. I think this is a chance to add some diversification.

SEANA SMITH: Well, and speaking of that pressure, Matt, I'm curious to get your thoughts on this. Because we can see, what, the NASDAQ is now down 9.7% from its recent high. Given the weight of these big tech names that we see in the market, how big of a headwind do you see this being for the broader market here going forward?

MATT ORTON: So I think we need to draw a distinction between the stock market at the index level versus what you could say is the market of stocks, so the average stock that you have. And what we've seen happen over the past couple of years with the big interest in a lot of these large mega cap growth names is that you've had a tremendous buildup at the upper end of the market capitalization that moves the indices, that moves the overall stock market.

But when you look at, say, an equal weighted basket of the market, so an equal weight of the S&P 500, that is pretty significantly outperforming the broader index. And that's because there are many other pockets within the index itself that are working. To what Layton said, there are many areas that are more cyclical in nature that are levered to the reopening of the economy that can and are starting to benefit. You're seeing meaningful pickups in earnings growth. And that's going to drive things going forward because consumers have more money to spend, and they're going to be redeploying that going forward.

So what we have been advocating to our clients is really to lean into this volatility, to use it opportunistically. Because at the end of the day, we are seeing real economic growth. And this is a great environment to be picking the right stocks to be in going forward.

ADAM SHAPIRO: I want to throw this back to Layton, though. When I heard earlier from Jared and then from Brian Cheung and we saw that the seven-year Treasury, the sale of those notes didn't go so great, my fear of a liquidity issue-- I mean, the banks are going to have to do something if the Fed doesn't. Where does that leave me as an investor? Because a lot of people are saying go to the banks right now. Buy the bank stocks.

LAYTON SPAHR: Yeah, so the banks are moving relatively well because of the steepening of the yield curve. And so there's hope that those net interest margins are going to expand. You know, my view of banks right now is loan growth is coming from outside of the banking channel. So until you get loan growth, it's not a growth industry. There are elements of the banking industry that look good. I think JP Morgan is the blue chip of the blue chips. [INAUDIBLE] outside of the just spread lending that they can live through environments where loan growth is fairly anemic.

But, you know, outside of the banking area, the growth that you're seeing in commodities, the areas that you're seeing in supply chain investment, that's really where that real growth is going to be best reflected in your investment portfolios. You know, banks are right now a tactical trade around steepening yield curves. We think once you get to 1.6, 1.7, which is spitting distance from where we are on the 10-year, it's going to start flattening out a little bit, and the steepening trade is going to end.

So we're not a huge fan of banks. Secularly, it's been a good trade because of the yield curve steepening. But we like cyclicals. We like reopening trade stocks. Those have two, three-year tailwinds behind them, in our opinion.

SEANA SMITH: Well, Layton, let's talk about some of those reopening names because I think we've talked to a number of our guests over the last several weeks, last couple of months, and they've been cautioning that it's actually a little bit too early to start jumping into some of those names. So when you're identifying attractive opportunities, what are you looking for?

LAYTON SPAHR: Yeah, so we like the global travel theme. So that's fairly obvious things like airlines, cruise lines, booking agencies. We also like the supply chain. When you look at inventory to sales ratios, they're as low as they've ever been. So that need to fill in the infrastructure that supports omnichannel retail and the demand that's coming from higher savings because of all the stimulus that's been put in the economy, that savings is going to be spent at some point.

And among higher end consumers, the first place they want to go is leisure activities and travel. For the middle market is more retail. It's Target, Walmart, places like that, where they want to upgrade their media center. They want to update their wardrobe. We haven't updated wardrobes as a society. I mean, we're wearing the same stuff on Zoom that we were wearing a year ago. That, retail sales, the supply chain, the omnichannel theme, those are the areas that we think really benefit as we reopen and renormalize the behaviors we have.

SEANA SMITH: I certainly am guilty of that. I feel like I'm wearing the same thing day in and day out. All right, let's get to Jared Blikre for our final thought here as we wrap up today's trading action. And Jared, it was really all about the bond markets in reaction to what we heard from Powell.

JARED BLIKRE: Yes, it was, and it's worth reiterating the virtuous cycle, or non-virtuous cycle, as it may be, that's playing out in the markets right now. And it's a big feedback loop. So let's go to the charts. We've got the 10-year T-note yield spiking eight basis points higher. A lot has been made about this, but we have a number of events. And the big picture problem is there's simply too much cash in the world and cash set to come out of the Treasury and various other places to find a home in Treasury securities in the short term. And that's driving rates, short-term rates, lower, even negative in some places.

And this is causing the US dollar to rise. That causes additional consternation for risk markets. We can see here it's at a multi-month high right now. And also taking a look at some of the other markets, WTI crude futures. Look at that. That is a one-year high as well, up to almost $65 a barrel. So the inflation narrative, what's happening with the bond market, everything playing out, I think is going to force the Fed's hand to act. Now they have on March 17th there the FOMC decision. And Presser and meeting could possibly wait until then. But it looks like if these funding pressures continue, they may have to act earlier.

SEANA SMITH: All right, our thanks to Jared Blikre, and of course, our thanks to Matt Orton of Carillon Tower Advisors and Layton Spahr, president of SS&C ALPS Advisors.