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Stocks Stay Positive on Trade Hopes, Still Patient Fed

Jim Giaquinto

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We’ve got ourselves a nice four-day rally in the market right now, which seemed impossible throughout much of the final three months of 2018. Sentiment has improved dramatically of late, giving stocks an opportunity to recover a decent amount of the correction’s losses even as uncertainties remain. The big question at the moment is: How much longer can this last?

The NASDAQ improved 0.87% on Wednesday to 6957.08, while the S&P was up 0.41% to 2584.96. The Dow contributed with a rise of 0.39% to 23,879.12.

Stocks have been on a roll since last Friday when we got an impressive jobs report and rather dovish comments from Fed Chair Jerome Powell that the Committee would be “patient” in deciding future rate hikes. The market action has been volatile yet ultimately higher ever since.

The trade talks between the U.S. and China in Beijing have come to an end. We knew there wouldn’t be any breakthroughs between these mid-level officials, but the feeling coming out of the meeting has been rather hopeful. An encouraging tone is apparently enough at the moment since the market’s sentiment has improved, but we’re still going to need an actual deal to make a meaningful move higher in the future.

The Fed minutes provided another positive on Wednesday as they pretty much reiterated what Mr. Powell said on Friday. The Committee is not hellbent on raising rates come what may, but will keep patient and let the data decide what happens from here.

And amid all this, we also have a partial government shutdown that is now well into its third week. So far, it doesn’t seem to be impacting the market very much, even though a contentious and short meeting between President Trump and Democratic leaders this afternoon may have contributed to late-day volatility. As with trade, we are going to need some sort of resolution on this front in order for stocks to really leave the correction in the dust. Remember, the market reserves the right to begin worrying about this stalemate at any time.

On Wednesday though, we enjoyed another green session on hopes that these uncertainties can be worked out. The portfolios were also active once again as the editors get back to making moves in a much more cooperative environment.

Today's Portfolio Highlights:

Zacks Counterstrike:
As expected, there were no grand trade deals from the Beijing talks, but news of the get-together was positive enough for Jeremy to make a move. He added 5% more to the portfolio’s position in Illumina (ILMN), a provider of DNA sequencing and array-based tech that was first added back on December 20. Despite higher than expected numbers in its preliminary report, shares initially dipped 5%. But those sellers were wrong as shares snapped back today. The editor liked the results and loved today’s reaction. Plus, he’s been itching to make more buys as the market rebounds. Read the full write-up for more.

Surprise Trader: It’s almost earnings season again, but Dave isn’t adding one of the big banks scheduled for next week. The editor decided to buy a 12.5% allocation in Shaw Communications (SJR), a Zacks Rank #2 (Buy) cable company that reports before the bell on Monday. The stock has bounced back from December lows and has an Earnings ESP of 2% for the upcoming quarter. Analysts expect earnings to jump 31.5% from the year-ago quarter. Read the complete commentary for more on this new buy.

Home Run Investor: With the market finally on the rise, Brian Bolan has been focused on buying stocks with a crowded short trade. Enter cosmetics company e.l.f. Beauty, Inc. (ELF), which stands for Eyes, Lips, Face. The editor notes that 18% of the available stock is short right now…and those shorts have been pressing their bets recently. The editor does not think that’s a wise decision with bears seemingly in retreat. Meanwhile, ELF has also beaten earnings expectations for four straight quarters with an average surprise of 76%. Read the full write-up for a lot more on this new addition.

Income Investor: Ryan is so excited to be buying again that he couldn’t wait for his normal weekly commentary on Thursday. Instead, the editor picked up a couple of defensive names today that are also Zacks Rank #2s (Buys). He added MPLX LP (MPLX), a pipeline, transportation and services play that is expected to grow earnings by 12.8% this year and revenue by 6.6%. The stock should benefit from the continuation of oil’s rebound, but also provides some cushion in case there are bumps along the way. The other buy was Dominion Energy (D), an electricity and natural gas utility based on the East Coast. Learn more about today’s additions in the complete commentary and in tomorrow’s weekly write-up.

TAZR Trader: PulteGroup (PHM) has rallied 40% since its October lows when the housing data was coming in weak. But the stock is still a Zacks #4 Rank and Kevin believes it will trade back toward $25 during the next leg down in the market with all Fed optimism already baked in, so he initiated a small short position today. He's going against a recent upgrade from KeyBanc whose housing analyst saw a possible trade opportunity up to $32, and that's why the stock gapped up Monday. The editor would add to the short position above $30. See his full commentary tonight for more details after a bullish conference call from peer homebuilder Lennar -- the top performing ZU stock today. By the way, the editor also added to his ProShares UltraPro Short QQQ ETF (SQQQ) position as he believes Amazon and Apple will reach near-term peaks in their bear market rallies.

All the Best,
Jim Giaquinto

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