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Market Recap: Friday, June 18

Stocks fell Friday to extend a streak of volatile trading following the Federal Reserve's latest monetary policy decision and projections. The Dow sold off sharply, sinking by 1.6%, or more than 500 points, to close out a fifth straight session of declines. The index fell more than 3% on the week in its worst weekly performance since October. The S&P 500 extended losses to close lower by 1.3%, while the Nasdaq fell 0.9%. Sylvia Jablonski, Defiance ETFs Co- founder & CIO and Ross Mayfield, Baird Investment Strategy Analyst joined Yahoo Finance Live to break down the details.

Video transcript

[MUSIC PLAYING]

SEANA SMITH: We've got about a minute and a half until we ring the closing bell and wrap up the trading week. We have Sylvia Jablonski. She's the co-founder and CEO of Defiant ETFs. We're also joined by Ross Mayfield, an analyst with Baird Investment Strategy, helping us break down this downward movement that we've seen in the market this week.

And taking a look at the action that we see today in the final minute of trading, you can see the Dow off 474 points. This is the fifth day in a row that the Dow has been in the red. And the Dow on track for its worst week that we have seen since January.

You can really see how traders are still a bit worried that the Fed could raise rates sooner than expected. As it stands now, all 30 of the Dow stocks are under pressure today. The biggest laggards in the Dow, Walgreen's, Chevron, and Goldman Sachs. Those three stocks are the worst performers, with Walgreens and Chevron both off just over 3 and 1/2 percent. Goldman off 3.2%. And then we're also seeing losses from Travelers and JPMorgan, rounding out the five worst performers.

Flipping over to this sector action, we're seeing red across the board there. All 11 of the S&P sectors moving to the downside. Financials, energy, and utilities are the biggest underperformers today. The XLF and the XLE off more than 2%.

And we could also see some losses across the board in technology. That had been almost an outperformer over the last couple of trading days, as we saw this rotation into some of those growth plays. But technology even falling out of favor today, off just around a half of a percent as well. Communications services off nearly 1%.

[BELL RINGS]

ADAM SHAPIRO: All right, we have a closing bell. And with the gavel, we end the week. The Dow is going to be off about 3 and 1/2 percent for the week. The S&P 500 is going to be down about almost 2% for the week. NASDAQ though, essentially flat for the week. And there you see, we'll settle on the Dow off almost 530 points, the S&P 500 off about 55 points, and the NASDAQ down about 130 points.

Let's go to our guests and talk about what we can expect as we go forward because we live to trade another day. And Sylvia, let's start with you because there's been a lot of talk about the Fed. It's now in the rear-view mirror. You still are optimistic that the reopening trade is one that can benefit investors, especially in equities, right?

SYLVIA JABLONSKI: I do. I think that this is not a super-surprising reaction in terms of we've seen this sideways activity and pullbacks just about around any news, whether it's good news, like stellar earnings or potentially bad news, rate hikes sooner than we think, although still far off.

But yeah, I mean, if I look at the reopen trade and if I think about hotels, airlines, and cruises, I mean, that really hasn't monetized yet. I know that those names are off of their all-time lows. And they've done quite well since year over year. But international travel is still closed. So you don't have a situation where the world is wide open for travel, particularly here in the US.

So we saw on Memorial Day that there is a 60% year over year increase. We're still not to pre-COVID levels there. Last week, when we heard the TSA say that they screened 2 million people, just about, pretty close to pre-COVID levels. So starting to pick up now. And I just think that these names have just been so beaten up. People have such a strong desire to get out there and sort of live. So you have this pent up demand. And I do think that these are names that if you can kind of tolerate these sideways activities and these sideways sorts days, that'll benefit.

SEANA SMITH: Ross, when you take a look at the action not only today but what we've really seen all week-- but today, we saw some selling into the close. The Dow closing off 532 points. What do you do on days like today? Is this an opportunity to add to some of your positions?

ROSS MAYFIELD: Absolutely. There are going to be hiccups along the way, particularly as we're 85% to 90%-plus in S&P off of the March 2020 lows. It's seasonally weak. Some of the breadth is kind of leaking out of the market. And yeah, the Fed gave a little bit of a reason for people to kind of take some gains.

But this kind of action in the midst of a structural bull market, a reopening, an economy to really get excited about. And we think that hasn't been fully priced in to the market yet. Opportunities to add to cyclical sectors, to add to economically sensitive sectors, especially since they've been taking it on the chin this week.

ADAM SHAPIRO: Sylvia, you talk about opportunity in places like 5G or as our company's CEO, Hans Vestberg says, 5Gee, has been growth potential. Then you look at a stock like our parent company, Verizon, which has essentially been sideways, flat. Was down today. And we're making a huge investment in 5G. Who's going to be the beneficiaries, then, of 5G, if a company like Verizon isn't gaining on that?

SYLVIA JABLONSKI: I think that Verizon is a company that will gain on that. I think that there's a longer-term outlook for some of this. So if we think about 5G and sort of what it is, 5G is a phenomenon, essentially, that's 100 times faster than 4G, which is what we're used to. Only 1/3 of the country has actually experienced 5G so far.

So I think companies like Verizon and then also the semiconductor companies like Nvidia, the chip companies, all the different types of technologies that are going to connect us and allow us to have a digitally shared economy are going to benefit. The projected CAGR for 5G is 70% between 2021 and 2025. So I think that if you have some patients and just think about how much is going into the infrastructure, not to mention the president's agenda and his interest in putting hundreds of billions of into 5G, I do think you'll see companies like Verizon, Nokia, again Nvidia, AMD benefit from that sort of trend.

And the 5G ETFs have been taking off too. So we think a lot of people believe the same thing.

SEANA SMITH: Jared, what do you have for us from the floor?

JARED BLIKRE: Well, there was a lot of activity indeed. I haven't heard this much going on, this many shouts since I've been back. So that Russell rebalance and also options expiration generating a lot of activity today. Let's go to the YFi Interactive to look at the close because we did see some selling in the final moments here.

You can see the Dow sold off to session lows, down over 500 points for the day. But the S&P 500 is in the same camp here. We'll take a look at that. And you can see, we got that 1% down day. So that streak is now over.

And I just want to take a look here if the YFi Interactive cooperates. Well, it looks like I've lost it. But we do have bank stocks under a lot of pressure this week and energy stocks as well. If you look at those heat maps, you see a lot of dark red.

And then you flip over to the tech side, and you see a lot of red in the chip space but not in software, a lot of money moving into software. So I think we're going to see here, over the next few weeks when we have this very weak seasonality, is more kind of stealth rotation, probably more selling than buying. But there will be sectors and opportunities to be bought.

ADAM SHAPIRO: Hey, Jared, thank you. Ross, real quick, we've got about two weeks, not even, left in this quarter. And we're going to be gearing up again for another earnings season. Should investors have an expectation that the kind of growth we've seen over the last two quarters is going to slow down? Or are we still Katie, bar the door, off to the races?

ROSS MAYFIELD: Look, I think moderating expectations, particularly after the last couple of quarters of historic beat rates and really, really strong numbers, makes some sense. But we're still looking at an economy that's going to print a historic GDP number, that's reopening kind of en masse just this quarter. I mean, the past few quarters have been about positioning for that. And now you're really going to start to see those results.

You've still got pretty low comps up of last summer. And I think you can expect strong growth. There's been a lot of talk about our re-entering kind of a peak growth area. And even if that's the case, I do think there's still room to run. In the corporate sector, there's strength across industry, across sectors there.

SEANA SMITH: Sylvia, how are you looking at the stronger US dollar? Because we're seeing, again, another boost today. And how big of a headwind do you think it is for some of these multinationals?

SYLVIA JABLONSKI: Yeah. I mean, I think it's going to be a headwind for some of the multinationals and for commodities. But I think longer-term, if we look at the overall macro backdrop, I think we sort of have to see what happens with inflation, what happens with rising rates, how we sort of end up this year, what the Fed does. And I think that'll dictate sort of the future of the dollar too. But in the meantime, I would expect to see volatility there too.

ADAM SHAPIRO: Jared, what's your final thought on all this?

JARED BLIKRE: Well, you were just talking about the dollar. Let's continue to talk about the dollar and check out the YFi Interactive because it is surging. It is on the move. And that has to do with interest rate differentials, pricing in sooner rather than later rate hikes in the US.

Now, if you take a look at a five-year chart, very instructive. I was going over this yesterday, basically touching the lows that we saw, coming off the lows we saw earlier in the year and also 2018. And so on that time frame, this move in the dollar has some room to run. And that, yes, it could pose some problems for multinationals as well as emerging markets.

SEANA SMITH: Ross, what do you make of the action that we've seen in financials? We had the XLF off just around 2 and 1/2 percent today. Goldman, JP Morgan among the worst performers in the Dow, when you would think that this would be a time that maybe investors will be favoring financials with the thought of higher rates sooner than expected. Is this an opportunity to add to some of those names?

ROSS MAYFIELD: I think so. I think the financials are really attractively positioned kind of coming out of a decade of stagnation post-great financial crisis. They recapitalized, great shareholder yield.

But it is a rate story. I mean, curve flattening is kind of bad for them. And so ultimately, do you think long bonds or long yields can go higher? If so, we still like the financials.

And I think that with the kind of economic growth and inflation expectations-- I know that the 10-year has come in quite a bit. But I just find it hard to believe that 17 or 175 is going to be the cycle high for the 10-year. If that moves higher towards the end of the year, I think you'll see it play out in financials.

ADAM SHAPIRO: Ross, I want to follow up with you regarding the financials, especially the big banks. It looks as if we're going to be back in an era of just boring. And their margins or the interest rates is where you're going to be looking because they're warning us now that they're trading desk boom, which has been pretty good over the last year, is coming to an end. What do you think? Ross?

ROSS MAYFIELD: Yeah, I mean, look-- hey, yeah, I'm still here. They're highly linked, highly sensitive to global GDP. At least in the next couple of quarters, and really, probably the next couple of years, we're going to have historically strong GDP, above trend globally. Yeah, the trading numbers might come down. But I think other areas that they participate in will see gains.

We continue to like them, especially since we're forecasting a steeper yield curve, 10-year long yields moving higher. But it will take stomaching days like today. They are linked pretty closely to rates. And it's a strange environment out there with the Fed.

SEANA SMITH: Ross Mayfield and Sylvia Jablonski, thanks so much for taking the time.