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Stocks Slide on Potential Trade Deal Delay

The market had its sharpest pullback in weeks on Wednesday due to additional trade concerns, but it still came well off its lows by the closing bell.

According to a Reuters report, that Phase 1 trade deal that we’re all waiting for might not come this year as the two sides can’t agree on tariff rollbacks. We may have to wait until 2020… if it happens at all.

Unlike the resilience shown to headlines in previous sessions, the major indices’ response to the news today resulted in a sharp selloff.

But it didn’t stay that way. Once the algos were done hyperventilating, investors bought the dip enough to significantly narrow the losses.

The NASDAQ slipped 0.51% (or nearly 44 points) to 8526.73, while the Dow declined 0.40% (or almost 113 points) to 27,821.09. The S&P hung onto 3100, but slipped 0.38% to 3108.46.  

At their worst of the session though, the Dow slumped by more than 250 points and the NASDAQ declined more than 100 points.

The recovery was probably helped by an impressive quarterly report from big box retailer Target, which came just in the nick of time after disappointing retail results yesterday from Home Depot and Kohls.

TGT beat expectations for earnings and sales, but most importantly it raised its full year profit outlook. Shares soared 14%.

And home improvement retailer Lowe’s advanced nearly 4% thanks to a strong report just a day after main competitor Home Depot dragged down the market.

We’ve been on a nice run over the past month since the Phase 1 deal was announced. Many investors believe we’re due for some pullback. Delays in signing a trade agreement would be a good excuse to take a break, just so long as the two sides keep talking.  

Let’s see what the headlines say tomorrow...

Today's Portfolio Highlights: 

Home Run Investor: The portfolio swapped a position on Wednesday, which keeps the service fully invested with 15 names. Brian got out of Marten Transport (MRTN) for a gain of nearly 9% in a little less than three months. The new buy is Apollo Medical Holding (AMEH), a medical services stock that offers integrated care, inpatient and physician alignment solutions. Rising earnings estimates have made it a Zacks Rank #2 (Buy). The editor really likes expectations for 2020, where the Zacks Consensus Estimate has jumped more than three times to .27 from 40 cents in the past 60 days. Brian thinks AMEH is poised to move back to the level. He also likes the look of its chart and believes the diversification will help the whole portfolio. Read the full write-up for more on today’s moves.

Marijuana Innovators: Big news for the marijuana industry! The House Judiciary Committee approved the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which removes cannabis from the Controlled Substances Act while also addressing several social justice concerns regarding enforcement. It is expected to pass the full House, though its passage in the Senate is far from certain. Nevertheless, the vote provided a boost for marijuana stocks, which are having a challenging 2019. Canopy Growth (CGC) jumped 15.1% on Wednesday and Aurora Cannabis (ACB) advanced 12.8%. Therefore, this portfolio had two of the top 5 names among all ZU stocks today. Over the past two days, these stocks are each up more than 20%! Click here to read Dave’s article on the MORE passage.

Technology Innovators: Internet software company Model N (MODN) dropped all the way to a Zacks Rank #5 (Strong Sell). That’s enough of a reason to get rid of the stock right there, but Brian also wants it gone while he can still secure a nice profit of about 14.4% in three months. He also sold IT services company Perspecta (PRSP) for a 1.8% return.

The editor wasted no time in filling one of those open spots with the addition of ACM Research (ACMR), a Zacks Rank #1 (Strong Buy) chip name that has slipped to an opportunistic entry point in the low range. That’s two sells and one buy today, so be ready for another pick up tomorrow along with more info on ACMR.

Stocks Under : As promised, Brian added a new name to this portfolio on Wednesday, which is a day later than usual. He bought Celsius Holdings (CELH), a Zacks Rank #1 (Strong Buy) that specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements. Topline growth is expected at 23% and its net margin has moved to 8.4% from 6%, so CELH has the good growth and improving margins that the editor really likes to see. He expects that will lead to higher EPS down the road. The stock also has a good-sized short position, so it should continue moving higher. Read the full write-up for more.

Value Investor: It’s going to be a long time until Taiwan-based Yageo completes its acquisition of Kemet (KEM), a major manufacturer of capacitors that the portfolio added last December. It’s not expected to close until the second half of 2020, so it could be a year or more away! Tracey has no intention of waiting that long, especially since the stock is likely to just sit at these levels in the interim. Fortunately, the editor showed a lot of patience with this name and gets to sell it today for an impressive return of around 39.9%.

All the Best,
Jim Giaquinto

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