NEW YORK (TheStreet) -- U.S. stocks continued where they left off on Wednesday, with the S&P 500 climbing another 0.25% on Thursday, and it's the financial sector that has the CNBC "Fast Money Halftime" traders excited.
"I continue to point to the strength in financials as being the most important thing happening on the equity side right now," said Josh Brown, CEO and co-founder of Ritholtz Wealth Management. He pointed out that the Financial Select Sector SPDR ETF (XLF) is hitting its highest levels since 2008.
The financial sector has taken the leadership role in the market, added Jon Najarian, co-founder of optionmonster.com and trademonster.com. First, energy was the leader, and then health care and technology. Now it's the financials leading the way, and investors shouldn't even think about taking profits yet, he said.
While many investors were looking for regional banks to do well, the big money-center banks have also outperformed, according to Pete Najarian, co-founder of optionmonster.com and trademonster.com, citing J.P. Morgan (JPM), Morgan Stanley (MS) and Goldman Sachs (GS), all of which are hitting new highs.
The traders also discussed the retail sales results for May, which topped economists' expectations. Pete Najarian cited housing plays, such as Masco (MAS) and Home Depot (HD), as companies that will benefit from consumers updating their homes. Other retail segments, however, continue to struggle, such as a luxury goods.
The assumption was that a strong retail sales report would cause a selloff in bonds, and yet the opposite has occurred as bonds rally on Thursday. Brown cited the recent pullback as one reason for Thursday's rally. He also said retail sales weren't that great, considering how much gasoline prices rose during the month.
Scott Mather, head of global portfolio management at Pacific Investment Management Co., said Pimco has reduced its Treasury bond allocation in the Pimco Total Return Bond Fund to 8.5% from 23.4% in April. Pimco is preparing for an interest-rate hike in September, and Mather expects 10-Year Treasury yields to climb to 2.75% to 3% by year's end. With the labor market improving and the economy gaining steam, there's no reason for the Federal Reserve to maintain a 0% interest rate.
As a result of higher interest rates, cash will also become a more suitable asset allocation, because it will earn some kind of return as interest rates get closer to normal levels, Mather said.
According to Steve Antczak, head of the U.S. credit strategy team at Citigroup (C), an increase in rates could add more volatility to the bond market. Like many others, he has concerns about the liquidity of the bond market, as natural buyers may not be there to absorb the additional supply of bond selling. No one -- including the regulators -- really knows how best to prepare for this possibility, he said.
The conversation shifted to sports apparel, beginning with Lululemon Athletica (LULU). Founder Chip Wilson is selling more than 20 million shares. Brown sees that as bullish, because he said Wilson has been more of a negative influence on the company than a positive one.
The Najarians agreed, with Pete saying that the company is "doing everything right" and that he'll likely be long the stock by the close of trading.
Pete Najarian also likes Nike (NKE), but called the stock "fully valued" at current levels. On broad market pullbacks, Nike is a stock to buy, he said. He also likes Foot Locker (FL) and said Under Armour (UA) has the best growth in the industry.