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And Canada Makes Three

Jim Giaquinto

It took A LOT longer than we originally thought it would, but Canada finally agreed to join the U.S./Mexico trade agreement. The news allowed most of the market to start the fourth quarter with a solid rally.

The new deal is called the U.S.-Mexico-Canada Agreement, or USMCA, in part because President Trump doesn’t like the name “NAFTA”. But it pretty much serves as an update of the last North American agreement. We were expecting this to happen before August was out, but instead it comes at the very beginning of October. It was a bit of a surprise that it happened at all as the U.S. and Canada seemed to be at an impasse with the former losing patience and gearing up to go bilateral with Mexico.

The market loves any kind of positive news headline, especially the Dow. The index soared by nearly 300 points at its best in the session, but settled for a still respectable advance of 0.73% (or nearly 193 points) to 26,651.21. Its now less than 100 points from a new high.

The S&P is even closer to making history after a jump of 0.36% to 2924.59. It’s a little more than 6 points from its closing high set on September 20. Think how much these indices would soar if the U.S. works out a trade deal with China.

The NASDAQ continues to go its own way. It spent most of Monday on the positive side, but fell 0.11% by the closing bell to 8037.3. It was a mixed day for the FANGs as Netflix advanced nearly 2% but Facebook was off 1.23% on the same day a new head of Instagram was named. The index was also impacted by a very rough session for small caps, as seen by the 1.39% plunge in the Russell 2000.

In other news, it looks like the Elon Musk soap opera might not be as dramatic as everyone feared on Friday. The innovative yet unpredictable head of Tesla struck a deal with the SEC regarding the now infamous “funding secured” tweet. Mr. Musk will stay on as CEO but step down as Chairman for at least three years. He’ll also pay a $20 million fine (as will Tesla) and the company will hire a couple more directors. This comes just a few days after Musk declined a deal with the SEC. Shares soared more than 17% on Monday, which pretty much makes up for the plunge after the SEC lawsuit was announced.

What a way to start the final quarter of 2018! And its only going to get more interesting as we work toward a new earnings season, a fourth rate hike and the mid-term elections.

Today's Portfolio Highlights:

Healthcare Innovators: The fourth quarter kicked off with a bang on Monday as Kevin bought two new positions and sold one. Firstly, Spark Therapeutics (ONCE) is a $2 billion biotech whose gene therapy for blindness rocketed sales 730% this year to $100 million. Kevin isn’t concerned that sales will likely slow a bit next year, because ONCE has an encouraging hemophilia-A candidate that will be in the spotlight at the ASH conference in December.

The other buy today was insulin pumps maker Tandem Diabetes Care (TNDM), which could be set for profitability in 2020 thanks to strong sales growth. Brokerages liked its recent analyst/investor day conference, so the recent pullback to $40 was too tempting for the editor to pass up. The portfolio also sold Nektar (NKTR) today for a 5% return to make room for ONCE. Read the complete commentary for a lot more on all of today’s moves.

Options Trader: The portfolio added a couple calls in iShares Small-Cap ETF (IJR) back in May because Kevin thought small-caps would outperform coming out of the mid-year correction. And he was right! However, they’ve pulled back in the last few weeks, so the editor thought this was a good time to get out of those two Nov 80.00 Calls and cash in the 63% return.

Technology Innovators: The payments space has been one of the hottest areas in the market of late, as evidenced by the likes of Square and PayPal. On Monday, Brian Bolan added a name from here that hasn’t captured much of the market’s attention yet. i3 Verticals (IIIV) is a Zacks Rank #2 (Buy) that has only reported once since going public in June…and it was a nice beat of more than 16%. The editor believes that IIIV is in a good spot to prosper as the sector continues to attract more and more investment dollars. Read more in the full write-up.

ETF Investor:
The economy may be booming right now, but it has still been a tough time for housing stocks. The rising rate environment is keeping existing homeowners from selling their houses, so inventories are low. Plus, increasing lumber and labor costs doesn’t help. Neena decided to sell Home Construction ETF (ITB) on Monday while she could still get a 10.5% return. The editor plans to replace this name later in the week.

Black Box Trader: This week’s adjustment included four swaps. The stocks that left the portfolio include:

• NOW Inc. (DNOW)
• Allegheny Technologies Inc. (ATI)
• Tilly's Inc. (TLYS)
• Aflac Inc. (AFL)

The new buys that replaced these names are:

• Cleveland-Cliffs Inc. (CLF)
• Nutrien Ltd. (NTR)
• United Continental Holdings Inc. (UAL)
• Walgreens Boots Alliance Inc. (WBA)

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

Zacks Confidential: There’s a revolution happening right now in biotech…and its called gene editing. In simplest terms, it is using the body’s own DNA to fight or prevent disease. Kevin Cook has been researching this field for years now, and he continues to be impressed with its potential to save lives…and its potential to generate positive returns in your portfolio. In this week’s Zacks Confidential, Kevin Matras has asked Cooker to provide a rundown and some recommendations on this ground-breaking space: The Century of Biology: 7 Biotech Stocks to Buy Now.

Until Tomorrow,
Jim Giaquinto

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