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Stocks Remained Hot in August

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▪ Kevin Matras answers your questions in Zacks Mailbag
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▪ And much more

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The last day of August was certainly not representative of the full month. Stocks pulled back from record highs and finished in the red on Tuesday but were solidly higher over the past 31 days.

The S&P climbed 2.9% for its seventh straight monthly gain, while the Dow managed to rise 1.2%. The biggest winner in August, though, was easily the NASDAQ, which soared 4% as investors were much kinder to the safe haven of tech as the delta variant complicated the recovery.  

“For even greater perspective, since the pandemic lows in late March of last year (that’s 17 months), the S&P has been up in all but 3 of those months. That means the S&P has been up in 14 of the last 17 months. Pretty incredible,” said Kevin Matras in Options Trader.

“And with the economy still growing, the jobs market still expanding, and with intertest rates still near zero (and likely to stay that way for the foreseeable future), it looks like there’s a lot more upside to go.”

But for Tuesday, the S&P slipped 0.13% to 4522.68, while the Dow was off 0.11% (or about 39 points) to 35,360.73. The NASDAQ outperformed its counterparts like it did all month, but still finished in the red by 0.04% (or around 6 points) to 15,259.24.

The S&P and NASDAQ had back-to-back record highs coming into the session and have been in the green for seven of the past nine days.

Given such success during challenging times, it was no surprise to see stocks take a step back. Of course, it didn’t help that the Conference Board’s consumer confidence index slipped to 133.8 in August, which was well short of expectations at 123 and July’s print of 125.1. The data suggests that the delta variant and rising inflation are impacting consumer decisions.

But this is a week full of economic data. The ISM manufacturing and construction spending reports are scheduled for tomorrow. And Wednesday also brings the ADP employment report, which is the precursor for the Government Employment Situation on Friday.

Today's Portfolio Highlights:

Stocks Under $10: A number of small-cap biotech names are starting to recover after slipping this summer. One of these rebounds is Flexion Therapeutics (FLXN), a specialty pharmaceutical company that develops and sells pain therapies. It has one approved drug called Zilretta to treat osteoarthritis pain in the knee. And they’re expanding the use of the drug to other areas of the body, such as the shoulders. FLXN also has other indications in the pipeline. Earnings estimates are on the rise, but the biotech is still not making money yet. However, revenue growth was 82% year over year in the most recent quarter, while price to sales of 2.8x is pretty low for an early stage biotech. Read the full write-up for more. In other news, this portfolio had two of the best performers among all ZU names today as GT Biopharma (GTBP) rose 6.1% and Cross Country Healthcare (CCRN) advanced 5.1%.

Surprise Trader: Buying a property is one thing, but maintaining it is something completely different. That’s where a company like ABM Industries (ABM) comes in. This Zacks Rank #2 (Buy) provides integrated facility solutions, such as janitorial, energy, electrical & lighting, landscape & turf, HVAC and even parking, among many other services. It has beaten the Zacks Consensus Estimate in three of the past four quarters, and now has a positive Earnings ESP of 2.7% for its next report after the bell on Wednesday, September 9. Dave added ABM on Tuesday with a 12.5% allocation, while also selling Abercrombie & Fitch (ANF). See the complete commentary for more on today’s action.

Insider Trader: It’s been less than a week since Digital Turbine (APPS) was added to the portfolio, but this provider of products and solutions to mobile operators is already a top mover. The stock was easily the best performer among all ZU names on Tuesday by climbing more than 14% after news that it would join the S&P MidCap 400 index. Tracey picked up APPS last Friday after three directors added during August.  

Zacks Short Sell List: The portfolio cashed in a double-digit winner on Tuesday while swapping out three positions for this week's adjustment. The stocks that were short-covered today included:

• Peloton (PTON, +16.6%)
• Autodesk (ADSK, +4.8%)
• The AZEK Co. (AZEK)

The new buys that replaced these names were:

• Intuit (INTU)
• JD.com (JD)
• StoneCo (STNE)

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: "We are entering the historically weakest month of the year for investments. The S&P 500 has, on average, surrendered about 0.7% of its value in September over the past 4 decades of trading (2019 was no exception with a 4.2% drop).

"This doesn't mean that we are guaranteed to lose ground in this upcoming month, but it does raise the odds of a broader market decline. Market participants have been trading on self-fulfilling prophecies since the pandemic began, but will September mark a deviation from this trend?"
-- Dan Laboe

See You in September,
Jim Giaquinto

Recommendations from Zacks' Private Portfolios:

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