Even though the market is up, the rally could have moved higher for those long stocks, Aaron Task told
"RealMoney" radio show listeners Friday, emphasizing that this could mean that it's time for investors to get defensive. Task, co-executive managing editor of TheStreet.com, was filling in for host Jim Cramer. He acknowledged that the producer price index report delivered bad news in the form of a core inflation reading that came in twice as high as expected -- a sign that inflationary pressures are here for real. This is likely mean more rate hikes from the Federal Reserve, which is, generally speaking, bad for stocks and the economy, he said. But Task believes the market has come to terms with the possibility of more monetary tightening, as evidenced by the fact that stocks weren't knocked down by the news. Instead, the said the cautious rally is due to the fact that the market is no longer in a bullish state of mind and that the market's fundamental characteristics are changing. He pointed to the recent spate of tech earnings as evidence, saying that a market in bull mode wouldn't have had such strongly negative reactions to results from Applied Materials ( AMAT - Get Report), Dell ( DELL) and Nvidia ( NVDA - Get Report). The bearish tone is here, and maybe it's time to play defense he said. Task added that this doesn't mean bailing on the market. It just means thinking about which sectors are primed for a rebound if market participants get defensive and start being concerned about the pace of growth. It also means being more careful about sectors that have had a tremendous run. He suggested that the telecom service sector could be one place to consider in this environment. He also said now would be a good time to rethink emerging market debt, which has been a highflier, now that the segment has had a tremendous run higher and some more socialist leaders have been elected in South American countries. With regards to emerging market debt, Task said it once seemed that the rising tide lifted all boats, but that now it's time to inspect those boats and determine which ones are truly seaworthy.
Task told a caller that there is a possibility that Nabors ( NBR) is bouncing. He pointed out that even though there was an energy selloff, he doesn't think the energy bull market is over. Layfield agreed, saying that the nation has yet to resolve problems of fuel supply and demand. Both agreed that now is a time to hold off on Dow Chemical ( DOW). The stock has been moving higher and that it could get hit if natural gas prices come back up.