NEW YORK (TheStreet) -- The S&P 500 slid 0.47% while the Russell 2000 tumbled 1.62%.
On CNBC's "Fast Money" TV show, Brian Kelly, founder of Brian Kelly Capital, said investors are beginning to divide into two groups: One group says the economy is improving and bond yields are going higher while the other group argues the economy is not improving fast enough, therefore bond yields are going lower.
Kelly expects yields to fall. He said it all comes down to one question: "How strong is the economy?"
Guy Adami, managing director of stockmonster.com, said the economy doesn't appear as strong as many investors once thought. He agreed bond yields are going to go lower and he has stood behind this thesis for many months on Fast Money.
Jon Najarian, co-founder of optionmonster.com and trademonster.com, said consumers have not been as strong as many investors had hoped, meaning they need interest rates to stay low and possibly go lower. The selloff in equities helped bonds rally on Wednesday as well, he added.
Cisco Systems (CSCO) reported better-than-expected earnings results and guidance. Adami called it a "solid quarter" and said the stock looks likely to retest its 52-week high near $26.50.
Kelly agreed, saying he is a buyer. He argued that investors will pile into the stock because of its valuation and revenue growth -- albeit, slow revenue growth.
Najarian suggested that investors were pleased by CEO John Chambers' comments regarding the company's embracement of software-defining networking.
Kelly told investors to avoid SeaWorld Entertainment (SEAS). He called the earnings report "not great" and said the company has publicity issues. For those who want exposure to theme parks, buy Disney (DIS).
Michael Novogratz, director and principal of Fortress Investment Group (FIG), was a guest on the show. He said the market has been very hard to trade, with the S&P 500 and Treasury yields remaining in such a tight trading range. He suggested investors keep positions small until a trend emerges.
Novogratz reasoned here is no credit bubble forming -- bubbles usually gets started from over-leveraged banks. This is not the case. He said the rising bond market suggests the economy is not improving as fast as many economists had previously thought. He concluded that momentum stocks will have renewed life sometime in 2014 and M&A activity should remain strong.
Anthony Scaramucci, founder and co-managing partner of SkyBridge Capital, and Gary Kaminsky, vice president of wealth management at Morgan Stanley (MS), were guests on the show. Kaminsky thinks interest rates were likely to remain low and possibly head even lower. He doesn't see a credit bubble either.
Scaramucci was joined by Ingrid Pierce, managing partner of Walkers Global. She said many institutional investors, big and small, are looking for more alternative investments. This bodes well for several different sectors such as "event-driven" investments and the credit market. She said the increase in offshore registration for hedge funds is likely to continue, possibly due to the fear of increasing taxes.
Scaramucci said his firm is looking for alternative investments related to activist investor situations, as well as mortgage-backed securities. He added that trust certificates from bank recapitalization related to Basel III regulations are also an area of great interest. He pointed out the underperformance of the standard long/short hedge fund managers.
SodaStream International (SODA) fell 1%. It was the first stock on the show's "Pops & Drops" segment. Adami was a buyer.
Sony (SNE) fell 6%. Najarian said, "I would stay away from Sony."
Nouriel Roubini, co-founder and chairman of Roubini Global Economics, and Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, were guests on the show.
Roubini argued that for an improving economy, inflation below 2% is needed. He thinks gold is likely to fall and the U.S. dollar should strengthen. He said deflation is a sign of lacking growth and pointed out that it's generally present in economic depressions. He also said deflation is a sign of low demand.
Schiff argued that deflation would help the economy, not hurt it as Roubini suggests. He said the U.S. dollar is going lower while gold is going higher. He said falling prices will help consumers by making their money go further adding that Americans don't wait for cheaper prices, they simply buy things when they need or want them.
Adami said Clovis Oncology (CLVS) has "room on the upside" due to its recent selloff and short interest.
Justin Gover, CEO of GW Pharmaceuticals (GWPH), was a guest on the show. He said the company is using cannabis to treat epilepsy in children. However, instead of using the ingredient THC, the company is focused on different parts of the plant that do not have "high" effects.
The drug, Epidiolex, is in Phase II trials and the results should be available in mid-2014. Another drug, Sativex, is in Phase III trials and the results should be available later in the year. The latter of the two drugs is used to treat spasticity in multiple sclerosis as well as pain for cancer patients.
Adami said GWPH appears to have upside. Najarian reminded investors that GWPH is not a fly-by-night marijuana penny stock. It is an established company.
-- Written by Bret Kenwell in Petoskey, Mich.