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Strong Retail Sales Bring Third Day of Gains

·5 min read

Stocks rose about 2% on Tuesday as three pieces of positive news helped the market to a third day of gains since last Thursday’s epic pullback.

The biggest impact probably came from retail sales, which soared 17.7% in May. Analysts were already expecting a hefty rebound from last month, but this result more than doubled their expectations.

The data suggests that consumers are ready and willing to spend as the economy continues to slowly reopen. In other words, it's another sign that the worst of the pandemic shutdown may be in the past.

But that wasn’t all. The market also loved to hear that dexamethasone, an inexpensive and widely-used steroid, showed positive trial results as a coronavirus treatment. The word “breakthrough” is being used as the study showed that the drug was saving lives.

This news comes as fears of a second wave of the virus are beginning to impact the market. Stocks don’t want anything to jeopardize the reopenings, so the idea that a cheap drug could help save people’s lives is almost too good to be true. Let’s see where this story goes in the days ahead.

Finally, the market appreciated reports that the White House is looking into a $1 Trillion infrastructure plan. Forgive the cynicism, but this should probably be filed under the “I’ll-believe-it-when-I-see-it” category, especially during an election year. Still, stocks that would benefit from such a plan had a good session on Tuesday.

When all was said and done today, the Dow climbed 2.04% (or about 526 points) to 26,289.98. Meanwhile, the S&P rose 1.9% to 3124.74 and the NASDAQ improved 1.75% (or nearly 170 points) to 9895.87.

The indices were actually off their highs for the session, due (at least partly) to Beijing closing schools as the city raised its coronavirus emergency response level amid an increase in cases.

Also, Fed Chair Jerome Powell reiterated the uncertain outlook moving forward in his Senate testimony. He said the recovery would be long and that we might not reach pre-coronavirus levels for a while.

Nevertheless, the good outweighed the bad on Tuesday and helped the major indices to a third straight day in the green.

Today's Portfolio Highlights:

Stocks Under $10: For the second buy in as many days, Brian decided to further diversify this tech-heavy portfolio by adding a medical device play. Cerus Corp. (CERS) develops medical products that inactivate viruses, bacteria and other pathogens in blood components used for transfusion. Earnings may finally be moving in the right direction, as the company met expectations in the most recent quarter after a few losses. But the editor really likes to see that earnings estimates are improving for the quarter and the year, which has made CERS a Zacks Rank #2 (Buy). He believes that the numbers are only beginning to grow for this young company. Read the complete commentary for more on this new pick. By the way, yesterday’s addition of Bed Bath & Beyond (BBBY) came just at the right time as the specialty retailer was one of the top performers on Tuesday with a jump of 15.2%.

Counterstrike: A stimulus proposal and better-than-expected retail sales have the market rallying on Tuesday, prompting Jeremy to get a little bit longer. But first, he got out of Direxion Daily SP 500 Bear 3X Shares (SPXS) because a hedge isn’t needed right now. The editor then bought a 10% position in Zacks Rank #1 (Strong Buy) digital media services company Yext (YEXT) and a 5% position in video game giant Take-Two Interactive (TTWO). Both of these companies saw shares dip after solid earnings reports, which make them perfect candidates for this portfolio. Read the full write-up for a lot more on all these moves. 

Value Investor: This portfolio had the top two performers of the day, led by an 18.9% jump for WW (WW). The weight management company (formerly known as Weight Watchers) saw a lot of business during the pandemic, as a recent update boasted a 7% jump in subscribers to 4.9 million. That includes 3.8 million digital subs. The other big winner was Eli Lilly (LLY), which rose 15.7% on positive results for a breast cancer treatment. WW is the second best performer in the portfolio with a rise of nearly 38% since being bought in late April, while LLY has advanced 17.4% since joining the service in early April.

Zacks Short List: The portfolio swapped out three names in this week's adjustment. The stocks that were short-covered include:

• Incyte (INCY, +4.4%)
• Aptiv (APTV, +1.4%)
• The TJX Cos. (TJX)

The new buys that filled these open positions are:

• Cimarex Energy (XEC)
• TMobile US (TMUS)
• V.F. Corp. (VFC)

Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

All the Best,
Jim Giaquinto

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