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Big Comeback for Market as Iran Worries Fade

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The market may have gotten over last week’s airstrike at about mid-day today, as the major indices reversed a morning pullback and finished at their session highs. 

Of course, all bets are off if tensions between the U.S. and Iran continue to escalate, but for Monday the Dow recovered from an approximately 200-point plunge and ended higher by 0.24% (or nearly 70 points) to 28,703.38. 

The best performance, though, came from the NASDAQ, which was the first major index to recover from the morning loss and eventually finished with an advance of 0.56% (or more than 50 points) to 9071.46. The S&P rose 0.35% to 3246.28. 

The indices had one of their worst sessions in weeks on Friday after news broke that the U.S. killed Iran’s top military leader in an airstrike. The losses snapped the S&P’s five-week winning streak, though the NASDAQ hung on and now has its own winning run. 

So add another uncertainty onto the pile. In just the few days since the airstrike, Iran and President Trump have been trading threats. 

The market is bracing for a retaliation from Iran, which could include cyber threats on top of military action. 

But it’s not too concerned just yet. Fortunately, the market’s been in a pretty good mood for weeks as the U.S. relationship with China appears to be improving ever so slightly. 

In fact, President Trump plans to sign the Phase 1 deal later this month, and then make his way to Beijing to talk about Phase 2.  

Can you imagine the reaction to this airstrike if the market had been in one of its bad moods? How much would stocks have plunged if it came during the recession scare from a few months ago? 

But this week probably won’t be all about Iran. Tomorrow we’ll be getting the ISM non-manufacturing index and Friday brings the big monthly government employment situation report. 

The first full week of 2020 is shaping up to be a crazy one!

Today's Portfolio Highlights:

TAZR Trader:
Iran wasted little time in retaliating for last week’s airstrike, as the country initiated a hack on a government website Saturday. Fortunately, Kevin wasted NO time in adding to his position in CrowdStrike (CRWD) on Friday as the combination of Iran’s “hacking history” and the big volume told him investors would come for the stock. Sure enough, on Monday shares of this cloud-delivered endpoint protection company soared nearly 9% on “massive” volume of 21 million shares, which made CRWD one of the top performers of the day. Make sure to read the editor’s complete commentary for more on Iran’s history of hacking and the importance of cyber security moving forward.

Technology Innovators: Given all this tension with Iran right now, Brian decided to add a defense equipment name to the portfolio on Monday. The editor picked up CAE Inc. (CAE), a Zacks Rank #2 (Buy) leader in providing simulation, modelling technologies and integrated training services to the civil aviation industry and defense forces around the globe. The company beat the Zacks Consensus Estimate by more than 10.5% in its most recent report. Read the complete commentary for a lot more about CAE.

Black Box Trader:
The portfolio kicked off the first full week of 2020 by replacing more than half of its stocks. In this week’s adjustment, the service sold:  

• Raytheon (RTN, +3.5%)
• Best Buy (BBY, +2.3%)
• Builders FirstSource (BLDR, +0.8%)
• Accenture (ACN)
• Everi Holdings (EVRI)
• RH (RH)

The new buys that replaced these names are:

• Delta Air Lines (DAL)
• DICK’S Sporting Goods (DKS)
• Diebold Nixdorf (DBD)
• Melco Resorts & Entertainment (MLCO)
• The AES Corp. (AES)
• WPX Energy (WPX)

Read the Black Box Trader’s Guide to learn more about this computer-driven service designed to take the emotion out of investing.

Counterstrike: "What’s hard for my friend and others to understand is that the noise you see on twitter, or in the news, or on the Golden Globes (I heard “brink of war” twice) doesn’t align with the probabilities.

"There is a very low probability that war will break out with Iran, despite all the rhetoric. While they might seek revenge through certain proxy attacks, it would be foolish of them to escalate the situation. Using logic and the understanding of the leader of Iran’s self-interest to stay in power (much like North Korea), nothing is likely to happen.

"But hey, low probability events can always come to fruition, right? The Vikings did beat the Saints this weekend and that was paying +350 odds. But when it comes to the market, smart money expects no escalation. The VIX was red and the market went green. Bears will point to crude oil and gold, but in my opinion, these were already trending higher.

"Going forward, algos will be responding to headlines, so let’s not get too complacent. But to prepare your portfolio for some kind of war is likely a mistake. Carry on what you were doing as we head into earnings season."
-- Jeremy Mullin

All the Best,
Jim Giaquinto

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