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Big Turnaround Brings First Green of Q4

Jim Giaquinto

Stocks saw their first positive session of the fourth quarter on Thursday, though they had to rebound from a stiff morning selloff after more soft data on the economy.

The ISM Services index came in at 52.6 for September, which missed expectations and was down from August’s 56.4.

The report comes a couple days after the ISM manufacturing report showed a second consecutive month of contraction and the lowest reading in more than a decade.

Though it should be noted that the services report was well over 50, which shows its still expanding.

The market’s initial, kneejerk response was to continue this week’s sharp selloff, which included the Dow losing more than 800 points in the first two days of the new quarter. At one point on Thursday, it was down another 300+ points, which would have brought the loss to well over 1,000 points if it continued.

But thankfully it didn’t continue!

The indices staged an impressive rally that swung the Dow more than 400 points, leaving the index with a gain of 0.47% (or about 122 points) by the close to 26,201.04.

Tech had a strong session and helped the NASDAQ to the best performance of the day with a rise of 1.12% (or about 87 points) to 7872.27. The S&P finished higher by 0.80% to 2910.63.

So what caused the turnaround?

Some folks think it’s a “bad news is good news” situation where more soft data increases the odds of even more rate cuts.

Or maybe the market just got oversold, especially after the algos responded to the services data by automatically selling.  

“The selling begets more selling and any number that isn’t where it should be is another reason to hit the sell button,” said Brian Bolan.

“At some point, the selling is just too much and buyers step in. We saw that today as the dip was bought and the market moved from red to green. The question becomes, is this the end of the selling?”

The Government Employment Situation report tomorrow will have a big say on whether or not the selling continues on Friday.

Unfortunately, the major indices look to be on their way to another weekly loss, but a positive reaction to the jobs news could get the market moving in the right direction heading toward next week’s trade meetings.

Today's Portfolio Highlights:

Technology Innovators: The online brokers have been in the news lately, but Brian decided to focus on the insurance side of the business for his newest addition. The editor picked up EverQuote (EVER), a Zacks Rank #1 (Strong Buy) provider of an online marketplace for insurance shopping. The company has a solid history of positive earnings surprises with an average beat of 35% over the past four quarters. EVER is still running a loss, but Brian thinks it will reach profitability in late 2020 or early 2021. He also likes the combination of topline growth at 35% and a price-to-sales multiple of 2.6x. Read more about this new addition in the full write-up.  

TAZR Trader: With the market shaking off this morning’s soft ISM Services report, Kevin decided to make a few moves. He picked up data analytics provider Alteryx (AYX) once again after a major brokerage upgraded several software companies. The portfolio pulled double-digit profits out of AYX in August and September. Meanwhile, the editor also added more to The Trade Desk (TTD) after a merger between a couple of its smaller rivals. The portfolio originally bought this provider of a technology platform for advertising on September 9. The portfolio also sold ProShares UltraPro Short QQQ ETF (SQQQ) to reduce exposure to the short side. Read the full write-up for more on today’s moves.

Home Run Investor: The market looks oversold right now, so Brian decided to take advantage with a new buy. He added Aqua Venture Holdings (WAAS), a Zacks Rank #1 (Strong Buy) provider of water-as-a-service™ solutions. The company has beaten the Zacks Consensus Estimate in three of the last four quarters, including a beat of 48% most recently. In addition to providing some diversification to the portfolio, the editor really loves the valuation here with a “super low” price-to-book of 1.76 and a sales multiple of 3.3x. WAAS is still expected to lose money this year and next, but the losses have been narrowing significantly. Read the full write-up for more on this new addition. 

Options Trader: "Stocks staged an impressive rebound today. After being down sharply in the morning, they ended up finishing solidly higher.

"After the major indexes essentially tested their 200-day moving average, stocks almost immediately bounced back up.

"The markets are still down for the week. But the recent pullback does not look ominous in the least, and instead, just looks like ordinary market action,"
said Kevin Matras

All the Best,
Jim Giaquinto

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