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Earnings Rescue Market from Morning Drop

The major indices lost their grip on early gains Wednesday but still recovered enough to get back on the positive side by the closing bell.

The Dow rose 0.70% (or about 171 points) to 24,575.62. The index was up nearly 300 points in the session and then slipped all the way into negative territory before heading higher again. The Dow got a lot of help from IBM, which soared nearly 8.5% after reporting better-than-expected fiscal fourth quarter results after the bell on Tuesday.

The other major indices took the same trajectory though didn’t have as energetic a rebound. The S&P increased 0.22% to 2638.7, while the NASDAQ inched upward by 0.08% to 7025.77.

Stocks had a four-session winning streak snapped yesterday on concerns over slowing global growth and the trade impasse with China. There was no news on either front today, but earnings season managed to get stocks back into the green.

The question now is: How much longer can that scenario play out? Earnings season has been pretty good so far, but the market could really use some clarity on these bigger uncertainties. As we’ve seen in recent weeks, the market’s improved sentiment suggests its waiting to take off on any positive developments.

“Last night and into the morning we saw nice earnings from Proctor and Gamble, IBM and United Technologies. Normally the market would hold gains on big stocks heading higher on strong EPS. However, the typically risks are simply overpowering any solid earnings news,” said Jeremy in Counterstrike.

“So individual stocks can still go higher on good EPS, but the market will continue to struggle until we get past China and the government shutdown.”

Today's Portfolio Highlights:

Home Run Investor:
Simply put, a good stock at a discounted price is what every investor wants to find, and that’s exactly what Brian Bolan sees with Funko (FNKO). This Zacks Rank #2 (Buy) pop culture consumer products company was a huge 130% winner for the editor’s other service (Stocks Under $10) last year. He’s looking for more of the same in 2019. FNKO has beaten in each of its last four quarters and is relatively cheap. Brian also sees margin improvement and topline growth of nearly 24%. If it beats again, he thinks this stock could get back to the $20 range. Read the complete commentary for more on this new addition.

Value Investor:
In its first earnings report since being added to the portfolio in early December, Synchrony Financial (SYF) beat the Zacks Consensus Estimate for the 7th quarter in a row. The consumer financial services company announced earnings of $1.09, which beat our expectations by more than 17% and brought its four-quarter average surprise up to 13.8%. The stock was the best performing name among all ZU portfolios on Wednesday with a jump of 10.7%. The stock is still “dirt cheap” according to Tracey. SYF is also one of the stars of the portfolio with a gain of more than 16% since inception.

Surprise Trader: "I love it when a plan comes together. Despite the very bearish feeling in the market throughout the mid-morning, stocks managed to put up another victory today.

"The trading day went just about as expected with stocks gapping up early, then letting loose down under the 50-day moving average only to stage a rally again for the second straight day. I’d like to believe that the downside is over. I like the retest but if we can’t find escape velocity soon, the market may be heading for some trouble.

"A second retest of the 50-day moving average was met with strength today. I’m looking for the market to get into the gap of today’s open and fill it before deciding on a direction. If it reverses to the downside, I’m worried the 50-day won’t see the buying it has seen the last two sessions."
-- Dave Bartosiak

All the Best,
Jim Giaquinto

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