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Powell Testimony Weighs on Stocks

Jim Giaquinto

SPECIAL NOTE: Remember, the latest episode of the Zacks Ultimate Strategy Session will be available for viewing no later than this Wednesday, July 10. Kevin Matras, Kevin Cook, Jeremy Mullin, Neena Mishra, CFA, FRM, and Sheraz Mian will cover the investment landscape from several angles in this informative event.

Don’t miss your chance to hear:

• Sheraz and Neena Agree to Disagree on whether you should stay away from Emerging Market Stocks
• Kevin Matras answers your questions in Zacks Mailbag
• Kevin Cook and Neena choose one portfolio to give feedback for improvement
• And much more

So be sure to mark your calendar then log on to Zacks.com and bookmark this page.

The Fed remained at the forefront of the market’s mind to begin this week, giving the major indices their second straight session of losses after reaching all-time highs.

The Government Employment Situation report on Friday threw a monkey wrench into investors’ confidence that a rate cut is inevitable later this month.

It is feared that the 224,000 jobs added in June (compared to expectations for only around 165,000) could provide the Fed enough cover to keep rates unchanged despite the market’s heart being set on a cut.

That makes Fed Chair Jerome Powell’s testimonies in the House and Senate on Wednesday and Thursday, respectively, all the more important. It also keeps investors from relaxing.

It should be noted, however, that the odds are still heavily tilted toward a cut at the next meeting. But that's still several weeks away.

Stocks decided to take it slow in the first session after the Fourth of July weekend as they wait for Mr. Powell’s comments.

The NASDAQ slipped 0.78% (or about 63 points) to 8098.38. The S&P was off 0.48% to 2975.95 and the Dow dipped 0.43% (or nearly 116 points) to 26,806.14. These indices were all at record highs on the Wednesday before the holiday.

Also weighing on stocks today was a more than 2% dip in Apple after a downgrade and a 1.3% loss at Boeing after losing a deal for 50 jets to Airbus.

Stocks are coming off a solid start to July with the NASDAQ jumping 2% last week, while the Dow and S&P each advanced by more than 1%. These indices also had an impressive month of June, so the Fed will have a big say in keeping this momentum going in the second half.

Earnings will also be a factor moving forward. If there’s nothing surprising about rates in the near future, the market could turn its attention quickly to next week’s reports.

It’s shaping up to be an eventful month that could have repercussions for the rest of the year.

Today's Portfolio Highlights:

Technology Innovators:
The solar space is where Brian wants to be right now, which is why he picked up Enphase Energy (ENPH) on Monday. Actually, the editor considers this a ‘twofer’ as it is also a chip stock. This Zacks Rank #1 (Strong Buy) delivers semiconductor-based microinverter technology for the solar industry, which increases productivity and reliability of solar modules. The stock beat by 60% last quarter and will report again at the end of the month. Slowly-rising earnings estimates leaves plenty of room for improvement and its valuation is ‘stiff, but worth it’. Read the complete commentary for more on today’s addition of ENPH and don’t be surprised if there’s another buy on Thursday.

Black Box Trader:
Half of the portfolio was swapped out this week and four of the departing stocks were positive. The positions that were sold today include:

• Cummins (CMI, +3.5%)
• Tractor Supply Co. (TSCO, +2.9%)
• Leidos Holdings (LDOS, +2.4%)
• PACCAR (PCAR, +1.6%)
• Pilgrim's Pride Corp. (PPC)

The new buys that replaced these names are:

• Aflac Inc. (AFL)
• Arch Capital Group (ACGL)
• Arconic (ARNC)
• Kimberly-Clark Corp. (KMB)
• Principal Financial Group (PFG)

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

Counterstrike: "There might be a little fear in what Powell might say on capital hill later this week. If there is any hint at no cut, stocks will sell off. However, I don’t think he will flip like he did late last year. The Fed will cut by 25 basis points and this is what should be expected.

"Here come earnings! They will slowly trickle in this week with the financials coming in hot on Friday. Then next week earnings season officially begins with stocks like NFLX, JNJ and Microsoft reporting.

"There isn’t much going on, for that reason we sit and wait. Earnings will come soon enough and the trades will come to us, rather than us chasing the trades. I expect volume to pick up later in the week as Powell has opportunity to give the markets a clear indication of what will happen later in the month."
-- Jeremy Mullin

All the Best,
Jim Giaquinto

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