Halftime Report: Is it Time for Risk-Off? (February 25, 2025)

Hosted by CNBC's Scott Wapner

Introduction

In the February 25, 2025 episode of Halftime Report, CNBC's Scott Wapner delves into the current state of the markets, focusing on a potential shift towards a risk-off environment. Joined by top investors Josh Brown, Jenny Harrington, Shannon Sokotia, and Jim Labenthal, the panel dissects the latest market movements, economic indicators, sector performances, and investment strategies amidst growing uncertainties.

Market Overview

Scott Wapner opens the discussion by outlining the day's market performance:

• Nasdaq: On track for its fourth consecutive down day.
• Dow Jones Industrial Average: Marginally positive.
• S&P 500: Declined by approximately 0.67%.

He highlights the persistent weakness in momentum stocks and sets the stage for a deeper analysis with the investment committee members.

Quote:

Scott Wapner [01:02]: "The Nasdaq on pace for its fourth straight down day. Many momentum names continuing to unwind as well."

Rates and Economic Indicators

Josh Brown provides an in-depth analysis of the bond market and economic sentiment:

• Interest Rates: Significant declines across various durations, with the 7-year note down by 10 basis points and the 5-year by 9-10 basis points.
• 10-Year vs. 2-Year Yield Spread: Currently down by 2.27, reaching levels not seen since January, signaling potential economic slowdown.
• Consumer Confidence: Dropped by seven points, the largest monthly decline since August 2021.
• VIX (Volatility Index): Approaching 20, indicating rising market volatility.

Quote:

Josh Brown [02:10]: "Consumer confidence was a miss. The VIX is near 20. The momentum trade continues to unwind."

Momentum Trade Unwinding

The panel discusses the unwinding of momentum trades, emphasizing the impact on specific ETFs and stocks:

• MTUM ETF: Down 3% in the month but still 5% positive year-to-date. Major holdings like Broadcom, JP Morgan, Walmart, Nvidia, and Costco are declining, signaling a broader strategy shift.
• Bitcoin: Currently in a 14% drawdown, the worst since last August's yen carry trade unwind.

Josh Brown reflects on the implications:

Josh Brown [02:10]: "People are abandoning that strategy. The momentum and even Bitcoin’s drawdown indicate more room for volatility."

Shannon Sokotia adds that the market is seeking safety amidst uncertainty:

Shannon Sokotia [05:57]: "Investors are concerned about these momentum names and are looking for protection in this particular market."

Sector and Stock Highlights

Technology and AI Stocks:

• Palantir, Applovin, Crowdstrike, Vistra: Significant declines as momentum trades falter.
• Tesla: Down 25% in a month, signaling investor apprehension in high-growth sectors.

Energy Sector:

• Jenny Harrington explains recent moves in the energy space, shifting from One Oak to Plains GP (PAGP) and Enbridge (ENB) to enhance dividend yields.

Dividend Stocks:

• Realty Income: Despite strong earnings and a dividend increase, downgraded to neutral with a new price target of $61 from $66, presenting potential upside with a 5.5% dividend yield.

Quote:

Jenny Harrington [34:22]: "We’re replacing One Oak with Plains and Enbridge to secure a stable dividend income yield of 5.5% to 6%."

UnitedHealth News

A significant development involves UnitedHealth Group:

• Senate Scrutiny: Senator Chuck Grassley has demanded information regarding alleged inflated patient claims to secure higher reimbursements, as reported by the Wall Street Journal.
• UnitedHealth's Response: Denies allegations, emphasizing their commitment to Medicare objectives and responding to fraud claims.

Quote:

Bertha Coombs [11:37]: "UnitedHealth has responded to the report saying we welcome the opportunity to share the facts with Senator Grassley."

Jim Labenthal expresses skepticism about the Senate's focus:

Jim Labenthal [13:19]: "The Senate has much more on its plate than going after UnitedHealth, which finances healthcare for many in the country."

Investment Strategies and Client Sentiments

Jenny Harrington discusses client concerns over market uncertainty:

• Rotation in Investments: Moving from high-risk momentum stocks to more stable dividend-paying assets.
• Client Anxiety: High levels of noise and uncertainty lead clients to seek safer investments, yet reluctance towards traditional bonds due to lowered yields.

Quote:

Jenny Harrington [14:09]: "The amount of noise and uncertainty out there is extreme right now. People are uncomfortable paying 23 times for a great story."

Jim Labenthal emphasizes the importance of sticking to investment disciplines:

Jim Labenthal [08:26]: "For the rational investor, you have to have a steady hand on the tiller at this time in the storm."

Stock Recommendations and Moves

Josh Brown:

• Best Chart in the Market: Highlights Starbucks (SBUX) as having the best technical setup in the S&P 500, anticipating a breakout above $114.
• McDonald's (MCD): Identified as a strong buy, supported by institutional interest, including from the Gates Foundation.

Bill Baruch:

• Broadcom (AVGO) and CrowdStrike (CRWD): Increasing positions despite recent downturns, viewing current prices as attractive entry points.

Jim Labenthal:

• Cleveland Cliffs (CLF): Despite recent earnings misses, believes in the long-term potential driven by rising steel prices and domestic production initiatives.

Quote:

Bill Baruch [18:25]: "We're putting some cash towards Broadcom and CrowdStrike because these are companies in the right place at the right time."

Upcoming Events and Coverage

The panel anticipates significant market movements following Nvidia's earnings report and a CNBC special interview with CEO Jensen Huang. The discussions will focus on:

• Nvidia's Performance: Expected to report substantial revenue growth, influencing broader market sentiment.
• AI Capex: As highlighted by Marco Polonovic of JP Morgan, the speed at which companies reduce AI capital expenditures will shape the next AI race.

Quote:

Scott Wapner [25:31]: "Tomorrow is a seminal event in this latest stage of what still is a bull market, focusing on Nvidia's earnings and its implications for the market."

Conclusion

The Halftime Report episode underscores a cautious market environment marked by declining momentum trades, rising economic uncertainties, and strategic rotations towards more stable investment avenues. Experts emphasize adherence to disciplined investment strategies amidst volatility, with selective stock picks offering potential opportunities. The forthcoming Nvidia earnings and related industry interviews are poised to play a pivotal role in determining the market's next trajectory.

Notable Mentions:

• Bitcoin: Currently in a 14% drawdown.
• UnitedHealth Group: Facing Senate scrutiny over alleged claim inflation.
• Dividend Strategies: Emphasis on stable, high-yield dividend stocks amidst market turbulence.

Disclaimer: The opinions and strategies discussed in this summary are those of the Halftime Report participants and do not necessarily reflect the views of CNBC or its affiliates. Investors should conduct their own research or consult with a financial advisor before making investment decisions.