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Fears Finally Catch Up to the Market

Jim Giaquinto

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Uggg…. We knew this could happen, but hoped it wouldn’t. Stocks have been weak for all of October thus far, and today they just tipped over. The fear of rising rates combined with the latest tech wreck led to losses of 3% or more for each of the major indices.

Tech had its worst day in years, leading to a 4.08% plunge in the NASDAQ to 7422.05. That’s nearly 316 points. The index is down more than 9% from its all-time high set in late August with over 8% of that drop coming this month (which is only 10 days old).

As you’d expect with such a performance, the FANGs just got butchered: Netflix (-8.38%), Amazon (-6.15%), Alphabet (-5.06%), Apple (-4.63%) and Facebook (-4.13%). There are also concerns for semiconductors as we head toward earnings season.

It didn’t get much better elsewhere in the market. The S&P slipped 3.29% to 2785.68 for its fifth straight session in the red. The Dow was off 3.15% to 25,598.74, which comes to approximately 830 points in one day.

The market has been dealing with concerns about rising rates and weakening tech for weeks now. And as we know, fears oftentimes give rise to more fears in Wall Street. There are also concerns about the upcoming earnings season after PPG warned yesterday about soft third-quarter results due to rising costs and weak demand from China. So, all of the big concerns we’ve been having in 2018 played a part in this selloff.

How long will this last? Is this the beginning of a prolonged downturn? Or is this another huge buying opportunity? We’ll have more answers in the days ahead. Like any group of investors, the editors have different opinions on what comes next. However, they all agree that the economy continues to be solid.

Today's Portfolio Highlights:

Home Run Investor: This proved to be the perfect day to cash in a big winner. Square (SQ) rounded the bases a couple of times during its stay in the portfolio, but it has been getting beaten up of late. The sharp selloff today had Brian Bolan in the mood to protect capital…and no name needs more protection that SQ. Therefore, he sold the stock and banked a return of approximately 205%!

Surprise Trader: Most portfolios are selling today to protect their profits…but not this one. Despite the sharp selloff, let’s not forget that earnings season unofficially starts later this week. Dave certainly hasn’t forgotten, which is why he added United Continental (UAL) on Wednesday. This Zacks Rank #2 (Buy) airline company has a positive Earnings ESP for the quarter coming on Tuesday, October 16. The editor especially likes that analysts see earnings growth of 37.8% over last year. He bought UAL on Wednesday with a 12.5% allocation. Read the full write-up for more.

Value Investor: Remember, pullbacks are completely normal and open up countless opportunities for investors as stock prices get cheaper. While its happening though, the downdraft can be rather alarming and push several of your portfolio positions to their sell targets. Such was the case in this portfolio as Tracey was pretty much forced to sell Eastman Chemical (EMN) and PVH (PVH). The editor still likes both of these industries (chemicals and retail, respectively) and would look to get back in once this selloff is over, but for right now she believes the best move is to secure healthy profits of 12.7% for EMN and 11.2% for PVH.

Income Investor: In addition to concerns about rising rates, the market is also wondering how much life is left in the current semiconductor cycle. That leaves a company like Texas Instruments (TXN) in a rough spot. The stock has slipped to a Zacks Rank #4 (Sell) as earnings estimates come under pressure. Ryan doesn’t want to wait around and risk it moving even lower, so he sold TXN on Wednesday to bank a 13.5% return. He also got out of Eastman Chemical (EMN) for a small profit.

TAZR Trader: Kevin sees more downside to come for the Dow, but believes that the Russell 2000 is oversold enough to bounce hard if the S&P gets back above 2800. Therefore, the editor decided it was a good time to sell Direxion Small Cap 3X Bear ETF (TZA) and pocket a profit of 27%. See the full write-up for a lot more on this move and the market in general, including a look at the charts.

All the Best,
Jim Giaquinto

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