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Rebound Fails as Investors Await Fed Statement

Stocks made a valiant effort to recover some of yesterday’s sharp losses, but the market could only manage a mixed session on Tuesday as investors wait to hear what the Fed has to say.

The Dow soared more than 300 points at it best today, but the index ultimately slipped 0.15% (or about 50 points) to 33,919.84. The S&P took the same rollercoaster ride and finished lower by 0.08% to 4354.19. The NASDAQ found a way to gain 0.22% (or about 32 points) to 14,746.40.

Stocks are returning from one of their worst sessions of the year, as each of the indices plunged 1.7% or more on Monday (the NASDAQ was down by as much as 2.2%). Investors are just a bundle of nerves right now with potential problems here at home and overseas.

Not only do we have to worry about China’s largest property developer, Evergrande, potentially defaulting later this week; but we also have to keep our eyes on Washington to see if they can stave off a government shutdown by raising the debt ceiling.

Of course, the biggest and most immediate concern of investors is the Fed meeting, which began today and will conclude tomorrow with a statement and remarks from Chair Jerome Powell in the afternoon.

The market wants to know when the Fed will begin scaling back on the monthly asset purchases. Investors have come to terms with such tapering, but are wondering if the delta variant has delayed the beginning of the process. There shouldn’t be anything new on rates, but you can bet that everyone will be paying close attention to any hints in the dot plot.

Needless to say, this announcement has the potential to be a market mover and explains why stocks couldn’t hold onto early gains today with such a big question mark looming over tomorrow.

Today's Portfolio Highlights:

Surprise Trader: We're in between earnings seasons at the moment, but Dave is still making moves when he can. On Tuesday, the editor added membership warehouse giant Costco (COST), which is a Zacks Rank #2 (Buy) that has beaten the Zacks Consensus Estimate in three of the past four quarters. It surprised by a little over 20% last time and has a positive Earnings ESP heading into the next report after the bell on Thursday. Dave added COST with a 12.5% allocation, while also selling half of BJs Wholesale (BJ) for 10.6% in a little over a month and all of Restoration Hardware (RH) after mostly sideways action. Read the full write-up for more.  

Stocks Under $10:
Sometimes a disciplined investor needs to make tough decisions. For example, Brian still likes GT Biopharma (GTBP) and Freightcar America (RAIL), but he dumped both names on Tuesday because they are “beyond the point of no return”. The editor quickly filled these two spots by adding AXT Inc. (AXTI) and VirTra (VTSI), which are both Zacks Rank #2s (Buys) that have beaten the Zacks Consensus Estimate over the past four quarters. Brian also likes their improving margins. AXTI is a chip stock with a very attractive valuation, especially considering the topline growth of 52% in its most recent quarter. VTSI is a “virtual training” company that helps the military and law enforcement. It enjoyed topline growth of 89% in its most recent quarter. Read the full write-up for a lot more on all of today’s action.

TAZR Trader: A test of yesterday's lows, and then some, is coming quicker than Kevin expected. Therefore, the editor played a little defense on Tuesday by getting back into ProShares UltraPro Short QQQ ETF (SQQQ). Read the full write-up for more.

Zacks Short Sell List: The service made only one change in this week's adjustment. It short-covered GoodRx Holdings (GDRX) and replaced it with the addition of The Clorox Co. (CLX). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide.

Headline Trader: "Market participants have been blindly buying every dip over the past 18-month with exceeding bullish sentiment keeping the S&P 500 above the 75% annualized return trendline. Since last March, this overzealous strategy has worked with bullish zeal driving up every sector.

"However, the past two weeks of accelerating declines on price-confirming volumes seem to have broken this market's overoptimistic bias. The S&P 500's 50-day moving average declined in today's session for the first time since last fall, illustrating a shift in momentum from the bulls to the bears.

"As I have said many times, I remain a market bull but am aiming to take advantage of this maturing cycles volatility in this seasonally weak trading month."
-- Dan Laboe, who had the best performer among all ZU names today as undervalued Uber Technologies (UBER) jumped 11.5% after an encouraging third-quarter outlook.

All the Best,
Jim Giaquinto

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