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Stocks Plunge Amid China, Fed and Washington Concerns

After a couple weeks of sluggish trading and modest declines for the indices, we finally experienced a significant pullback on Monday that many investors were waiting for. Stocks dropped more than 1.7% to begin another busy week, which includes a very important Fed meeting and a debt ceiling debate in Washington.

The NASDAQ plunged by 2.19% (or about 330 points) to 14,713.90. The Dow was off 1.78% (or about 614 points) to 33,970.47, while the S&P slipped 1.7% to 4357.73. Stocks are coming off two consecutive weeks of losses as the market worries about several factors, including the delta variant, rising inflation and whatever Chair Jerome Powell & Friends have to say later this week.

It should be noted, however, the stocks came off their lows before the close on Monday. For example, the Dow was flirting with a 1,000-point plunge earlier in the session.

Despite all the domestic concerns at the moment, one of the bigger problems today came all the way from China. Evergrande Group, that country’s biggest property developer, looks on the verge of defaulting, which has investors biting their nails over the possibility of contagion at such a tender time for the U.S. economy.

Jeremy Mullin, editor of Counterstrike and Commodity Innovators, has been talking about Evergrande for the past week.

“The Evergrande situation is accelerating, as investors are starting to believe that the Chinese property company will default. The prior thought was that the Chinese government would bail them out, but they actually want the housing market to cool. What better way to do so to let a bad actor fail?” said Jeremy.

“Goldman thinks the contagion is limited to Asia, but notes there are downside risks to China growth in Q4 and into next year. The firm says an Evergrande collapse could be a headwind for global GDP.”

Here at home, we’re getting ready for this week’s Fed meeting, which begins tomorrow and concludes with a statement and comments from Chair Powell on Wednesday. Investors want to know when they will start scaling back on the pandemic-era asset purchase program, and if the timeline will be delayed amid the delta variant.

If China and the Fed weren’t enough, our friends in Washington could have a say in the market’s direction as the deadline to raise the debt ceiling draws near. The House will be voting later this week to keep the government funded past Sept 30 and avoid another shutdown.

And all of this is happening in September, which always gives investors a sick feeling since it is historically the worst month of the year for stocks. So far, it’s living up to its reputation.

Today's Portfolio Highlights:

Blockchain Innovators: The logistics industry has been a fantastic proving ground for blockchain technology. In fact, there’s a whole organization called the “Blockchain in Transport Alliance” (BiTA) with 500 members across 25 countries that encourages the use and adoption of this game-changing technology. One of those members is Covenant Logistics (CVLG), which is expected to generate EPS growth of 217% for this year on revenue growth of more than 18%. Plus, rising earnings estimates made the stock a Zacks Rank #1 (Strong Buy). Dave added CVLG on Monday, while also getting out of Rio Tinto (RIO) after the name slipped all the way to a Zacks Rank #5 (Strong Sell). Read the full write-up for a lot more.  

Headline Trader: The NASDAQ 100 has dipped below its 50-day moving average and right into a “perfect profit-pulling opportunity”. But Dan thinks there’s more bearishness to come, so he decided to scale out of the triple short ProShares UltraPro Short QQQ (SQQQ) for more than 11% on Monday. The editor bought this hedge back on August 30 to protect the portfolio from an overbought situation in the NASDAQ. It has worked out just as planned so far.

Commodity Innovators: The growing demand for electric vehicles (EVs) has made lithium a very hot commodity of late... and Jeremy expects that demand to continue. So today’s drop in the Global X Lithium & Battery Tech ETF (LIT) provides a terrific opportunity to pick up this long-term play at a bargain. The fund tracks the Solactive Global Lithium Index. The editor added LIT on Monday and also got out of Lindsay Corp. (LNN). Read the full write-up for more.

Black Box Trader: More than half of the portfolio was refreshed in this week's adjustment. The six stocks that were sold included:

• LKQ Corp. (LKQ)
• PVH Corp. (PVH)
• Toll Brothers (TOL)
• Textron (TXT)
• Levi Strauss (LEVI)
• Deere (DE)

The new buys that filled these spots were:

• Alcoa (AA)
• AutoNation (AN)
• Olin Corp. (OLN)
• Signet Jewelers (SIG)
• Goldman Sachs (GS)
• The Mosaic Co. (MOS)

Read the Black Box Trader’s Guide to learn more about this computer-driven service.

Zacks Short Sell List: This portfolio had three of the best-performing stocks on Monday, which makes sense on a day when the S&P plunges by 1.7%. The service is designed to take advantage of falling and volatile markets. The short in TripAdvisor (TRIP) led the way with a rise of 7.6%, while the shorts in Enphase Energy (ENPH) and (JD) advanced 5.25% and 4.6%, respectively. The weekly update for this portfolio is tomorrow.

Until Tomorrow,
Jim Giaquinto

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