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No Rate Cut, No Rally

Jim Giaquinto

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The market has been due for a pullback after several days of new all-time highs… and the Fed finally gave it a good excuse.

The S&P went from an all-time intraday high to its worst performance in over a month in the space of Jerome Powell’s press conference. The Fed Chair said low inflation was only temporary (or “transitory” in his words) and there was no need for any change in interest rates.

The index had put together three straight sessions of all-time highs… and a fourth seemed to be in the making. But then it took a header in the final hour and finished lower by 0.75% to 2923.73.

The other major indices went on the same ride. The Dow slipped 0.61% (or about 162 points) to 26,430.14 and the NASDAQ dropped 0.57% to 8049.64.

Not even a 4.9% rise in Apple nor a nearing trade deal with China could stem the downturn once it got started.

Mr. Powell and the Fed’s sudden dovish turn earlier this year was the biggest reason why we’ve had such a strong start to 2019, so it only seems fitting that a slightly more hawkish-than-expected speech from the same guy would cause a stumble.

So is this just a one-day break from the record-setting pace, or the beginning of a more pronounced pullback?

Actually, the editors and many investors wouldn’t mind a little retreat as the market has been hot for a while now. After a better-than-expected earnings season and a solid GDP for the first quarter, any such breaks could be considered buying opportunities.

Today's Portfolio Highlights:

Home Run Investor: The plan for this portfolio is to be fully invested when the China trade deal is announced, which could be as soon as mid-May. Therefore, Brian Bolan added Ultra Clean (UCTT) on Wednesday, marking the service's 14th position out of an expected 15. This Zacks Rank #2 (Bull) is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. The stock’s momentum was stunted with the disappointing report from Intel, but the editor thinks that just opened a great opportunity. UCTT reports tomorrow after the close. Brian likes the sector and wants to be in it for the upcoming trade deal. Read the complete commentary for more. 

Insider Trader: Company insiders are getting back to business… and so is this portfolio. Tracey added these three names on Wednesday:

• Grubhub (GRUB): This online food ordering company sold off despite reporting a strong quarter. In response, the CEO made a huge confidence buy yesterday by picking up over 15,000 shares for about $1 million.

• Simmons (SFNC): Banks are undervalued at the moment. This regional name recently saw the CEO and a director buy shares after its first quarter report.

• Allison Transmission (ALSN): This automatic transmissions company recently reported a solid quarter and made a couple acquisitions. Shares are only up 6.6% this year but the stock has a price target of around $60. The CFO bought 5000 shares. 

The editor put about 8% of the portfolio into each name. Read the complete commentary for more on these buys. 

Stocks Under $10: Shares of LSC Communications (LKSD) dropped 5% after slightly missing on the topline in its earnings report last night. Brian Bolan thinks that was an overreaction for this Zacks Rank #2 (Buy), which provides traditional and digital print, print-related services and office products for publishers, merchandisers and retailers. However, the editor notes that this name is in a holding pattern at the moment, since it agreed to be acquired by Quad Graphics last October. The merger should happen soon as it is expected in the middle of 2019. Read more about this new buy in the full write-up.

Surprise Trader: We don't see a positive Earnings ESP of 28% every day. However, that's the situation for tomorrow's report from Willscot (WSC), a Zacks Rank #2 (Buy) that provides various modular space and portable storage solutions. Sales are expected to grow around 44% this year and as much as 85% for the quarter. WSC really took off when it solidly beat EPS expectations last time, and Dave is hoping that history can repeat itself tomorrow. He added the stock on Wednesday with a 12.5% allocation. The editor also sold Thermo Fisher (TMO) for an 8% return in just a couple weeks. See the full write-up for more.

Have a Good Evening,
Jim Giaquinto

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