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Dow Jumps 1% Despite Yield Curve Worries

Jim Giaquinto

The market seems to have made peace with the idea of a bond yield inversion (for now), as the major indices each advanced on Wednesday even though the 10-year is spending a lot of time below the 2-year.  

When this same thing happened two weeks ago, the Dow plunged 800 points, or 3.05%. However, the index was up 1% (or 258 points) today to 26,036.10.

The S&P advanced 0.65% (or nearly 19 points) to 2887.94 and the NASDAQ rose 0.38% (or almost 30 points) to 7856.88.

Stocks started the session in the red, but that didn’t last long as the bulls took control and helped the indices close at right around the highs of the day.

One of the big reasons for today’s rally was energy, as crude prices rose on a report that inventories dropped 10 million barrels last week.  

Though there are still two days left, each of the major indices are up approximately 1.5% so far this week. Once again, they go into the late innings with a chance to break their four-week losing streaks and secure one green week for the disappointing month of August.

However, we’ve seen stocks blow a lead late in the game on a trade headline or Presidential tweet. So investors shouldn’t get ahead of themselves, especially as we move toward a three-day weekend and a new month when fresh tariffs are scheduled to take hold.

The market seems open to the possibility that the inversion isn’t quite the dire signal of recession this time around. Instead, it could be the result of negative yields around the world.

But that doesn’t mean we’re comfortable with it! Investors will be watching the bonds and hoping they get back to normal, just like they hope the trade conflict with China won’t devolve further as we move toward Sept. 1.

But for now, let’s see about getting through the next couple days and ending this difficult month on a positive note.

Today's Portfolio Highlights:

Large-Cap Trader: The portfolio swapped out three names on this busy Wednesday. The new buys are:

• Agilent (A) – focused on six key markets: Food; Environmental and Forensics; Pharmaceutical; Diagnostics; Chemical and Energy; and Research.

• AmerisourceBergen (ABC) – provider of pharmaceutical services.

• Cadence Design Systems (CDNS) -- the largest supplier of electronic design technologies, methodology services, and design services.

Each of these stocks are “solid large-cap stuff”, according to John. They are all Zacks Rank #2s (Buys) and have earnings histories that range from “nearly spotless” to “flawless”. CDNS reports again on October 18, while ABC and A release results on November 5 and November 18, respectively.

The editor sold Bristol Myers Squibb (BMY), UnitedHealth (UNH) and CF Industries (CF) to make room for today’s buys. Allocations will be spread out evenly among the new additions, which means they each get a weight of approximately 6.3%. Read John’s complete commentary for a lot more on today’s moves. 

Surprise Trader: Shares of Target (TGT) soared more than 20% last Wednesday when the discount retailer reported strong quarterly results. With the market still susceptible to downside risk, Dave thinks it’s a good idea to secure some of the profits in this name. Therefore, he sold half of TGT for a gain of 26.5% in less than 2 weeks! The editor also bought GMS (GMS) today, which is a distributor of wallboard and suspended ceilings systems that reports before the bell tomorrow. This Zacks Rank #2 (Buy) has a big Earnings ESP of 10.18% for that upcoming quarter. GMS was added with a 12.5% allocation. See the complete commentary for more.

Home Run Investor: The portfolio is really into rebound plays at the moment, which is why Brian added Marten Transport (MRTN) on Wednesday. Shares of this Zacks Rank #2 (Buy) long-haul truckload carrier moved higher after a solid quarterly report, but gave it all back and then some over the following few weeks. In other words, the editor sees an excellent entry point for this name. MRTN has an impressive history of beating the Zacks Consensus Estimate, amassing an average beat of 6.8% over the past four quarters. Brian also likes the valuation. Read his full write-up for more on today’s buy.

TAZR Trader: The path of least resistance still seems to be lower, according Kevin, so innovative names like Invitae (NVTA) are at bargain prices. On Wednesday, the editor started a position of 5% in the company, which is focused on genetic diagnostics for hereditary disorders, including several cancers. Read the full write-up for more on this stock and Kevin’s plans for operating during this uncertain time for the market.

Have a Great Evening,
Jim Giaquinto

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