The 'profitless Nasdaq junk' stocks leading the recent rally pose the biggest risk to investors, says Josh Brown

Published Tue, Feb 21 20232:46 PM EST

Tech stocks are outperforming in the new year, but some of the names leading the market right now pose some of the biggest risks for investors, according to Ritholtz Wealth Management CEO Josh Brown. "The actual leadership is profitless Nasdaq junk, right, and that I think is where your biggest risk still is, despite the big move," he told CNBC's "Halftime Report" on Tuesday, calling many of the current market leaders "garbage" stocks. The comments from Brown come amid Tuesday's sharp market selloff, with the Nasdaq Composite last trading down about 2.3% on the day as concerns mounted that a Federal Reserve pivot may not come as soon as expected. The Nasdaq's been on a tear so far this year, last up more than 10% and outperforming both the S & P 500 and Dow Jones Industrial Average . In a note published Sunday, Morgan Stanley's Mike Wilson said that the bear market rally that kickstarted in October has "morphed into a speculative frenzy" hinging on the idea that a Fed pause or pivot is ahead. The dropdown in technology stocks during Tuesday trading, Brown added, is likely an example of "machines chasing machines." "What's going on is profits are being taken because volatility has come back," Brown said. "You've got all sorts of algorithmic programs out there operating …. They're just making trades based on something that was working up until last week, stopped working ... and now they go the other way." Given this backdrop, many areas of technology appear vulnerable including some areas of biotech and communications services, but not all industries are created equal, said Shannon Saccocia, chief investment officer at SVB Private. Many investors bought a slew of tech stocks believing that they looked cheap after the recent pullback in shares. But these stocks only look inexpensive if the Fed cuts rates significantly and begins 2024 at a lower terminal rate, she wrote. Amid this environment, Saccocia told CNBC's "Halftime Report" that she beefed up her positions in both Cisco Systems and IBM , saying that both companies trade at reasonable multiples "There are catalysts for these companies, but they're not trading at those outsized multiples, so it makes it a great way for me to take advantage of the exposure without overpaying for it in this environment," she said. Cisco is on track to improve its margins given the subs they expect to add, Saccocia said. She also highlighted IBM's strong dividend yield at roughly 5% as a strength for shareholders.