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Stocks Take a Break, but Not the Fed

Stocks gave back a little of yesterday’s huge gains on Wednesday, but nowhere near as much as was feared earlier in the session. The major indices dropped sharply this morning and had to deal with a hawkish release of Fed minutes. However, a nice recovery amid a solid earnings season led to only modest losses by the closing bell.

It would’ve been disheartening if the Dow lost over 300 points just a day after it soared 550 in the wake of a stiff pullback. However, that was the situation we found ourselves in this morning. Fortunately, the market wasn’t giving up that easily. The index largely recovered and ended with a much tamer decline of only 0.36% (or a little more than 91 points) to 25,706.68.

The other major indices took pretty much the same trajectory as the Dow today, but came even closer to positive territory. The S&P was off by only 0.03% to 2809.21, while the NASDAQ slipped by 0.04% to 7642.7. Netflix, which was the big afterhours report yesterday, climbed 5.28% after beating expectations for subscriber growth.

“Being unchanged on the day is a positive considering the massive rally over the last 48 hours,” said Jeremy in Counterstrike.

“We did see some selling off the open that brought the S&P back under 2800, but buyers came back before the lunch hour and bought every dip after the Fed minutes.”

Those Fed minutes were the big story of the day. Basically, if any investors were hoping the recent pullback (or the President’s criticisms) would delay plans for gradual rate hikes, then they were sorely disappointed. Powell & Co. plan to continue raising rates to keep the economy from overheating. Wall Street was not a fan of the hawkish sentiment, but didn’t let it ruin the session.

Perhaps the market’s mood is being helped by a solid start to earnings season. According to Sheraz Mian’s recent Earnings Trends article, total earnings for the 51 S&P companies that have already reported are up 19.4% from last year, while revenues are higher by 7.9%. Nearly 90% of the companies beat earnings while more than 66% topped revenues. And earnings season is just getting underway…

Today's Portfolio Highlights:

Home Run Investor: The positive report from CSX last night had Brian Bolan looking for some exposure to the transportation space in this strong economy. But instead of adding a rail company, the editor decided to pick up a trucking one. On Wednesday, he bought Schneider National (SNDR). This Zacks Rank #1 (Strong Buy) has beaten the Zacks Consensus Estimate in three of the past four quarters and is also a good value. The portfolio is getting a stable and growing stock at a good price after slipping in last week’s selloff. If the rail stocks continue to do well, Brian will be feeling pretty good about SNDR when it reports again on November 1. Read the complete commentary for a lot more on this new addition.

Surprise Trader: If the US consumer is feeling good (and they are!), then you can bet that their credit cards are at the ready. And that’s why Dave is expecting positive things from consumer financial services company Synchrony Financial (SYF). This Zacks Rank #2 (Buy) has a positive Earnings ESP for the quarter coming before the bell this Friday, while analysts are expecting year-over-year earnings growth of 14% to 80 cents. The editor sees a solid number coming up, so he added SYF on Wednesday with a 12.5% allocation. Go to the complete commentary for more.

Income Investor: In the search for a “juicier” yield, Ryan has been talking about adding a REIT. But first he wants to see three things: 1) stable/increasing FFO; 2) stable/increasing occupancy rates, and; 3) a strong percentage of total mortgage debt classified as non-variable. The editor found a REIT that hits all three points in Community Healthcare Trust (CHCT). Obviously, the fund is focused on community healthcare facilities and has 91 properties across 27 states with assets worth about $417 million. The editor likes investing in a steady cash flow generator at a time of volatility. In addition to all this, CHCT’s track record suggests that a dividend hike is right around the corner. Read the full write-up for a lot more on this new addition.

TAZR Trader: While the market was selling off last week, you probably missed that Turtle Beach (HEAR) pre-announced a strong third quarter. The $285 million small cap raised its guidance for earnings, revenue and EBITDA. Kevin added this manufacturer of high-tech gaming headsets in August and took a loss, but it looks like he was just a little early. The holiday-shopping season is right around the corner and video game companies are expecting huge sales, which means gamers will also be needing HEAR’s “must have” headsets. The editor sees 20% to 30% upside potential this quarter, so he has no problem buying the stock again with a 7% allocation. He’ll buy more on any additional pullback. Read the complete commentary for the full analysis.

All the Best,
Jim Giaquinto

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