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New Tariff Threat Ends Rebound Rally

Jim Giaquinto

We were on our way to recovering all of yesterday’s selloff in Thursday’s session, but a curveball on trade ended the rally and gave us another day of losses.

President Trump announced an additional 10% tariff on $300 billion worth of Chinese goods beginning September 1.

In a week dominated by the Fed and earnings season, the last we heard on trade was actually good news. U.S. and China negotiators met this week for the first time since the G-20. Nobody was expecting a breakthrough, but the very fact of a face-to-face meeting was considered a positive.

Apparently, there wasn’t enough progress as far as the President was concerned. Now trade is front and center again, which led to quite a dramatic turnaround on Thursday.

The Dow was the perfect example of today’s wild ride, as it went from a high above 300 points to a loss of approximately 280 by the close. It was down 1.05% to 26,583.42.

The other two major indices took the same trajectory, ending with the S&P lower by 0.90% to 2953.56 and the NASDAQ off by 0.79% (or 64 points) to 8111.12.

This comes a day after losses of more than 1% for each of the indices on fears that the Fed may not cut rates much beyond Wednesday’s easing of 25 basis points.

Nevertheless, July was still a positive month.

Investors can’t stand the idea of more tariffs, but the President may have done them a favor by increasing the odds of further cuts. In his press conference yesterday, Fed Chair Jerome Powell said that trade made the U.S. economic outlook more uncertain.

So tomorrow just got a lot more interesting. Not only is the government’s jobs report scheduled, but we’ll also be watching for any more fallout from today’s trade news.

Today's Portfolio Highlights:

TAZR Trader: Despite the trade-induced selloff, shares of data analytics software company Alteryx (AYX) have soared past $130. Kevin decided to sell a third of the position for a 52.1% return in about 2 months. Meanwhile, the editor also bought a 7% allocation in GW Pharmaceuticals (GWPH), the Zacks Rank #2 (Buy) biotech company with the first FDA-approved cannabis-derived drug. Kevin has fundamental and technical reasons for buying the stock, including immense potential for Epidiolex and the possibility for a “sling-shot” higher. Read the full write-up for a lot more on both of today’s moves.  

Technology Innovators: The portfolio has held social media giant Facebook (FB) for four months now, but the headwinds are becoming too much for Brian. He decided to sell the name on Thursday and secure a nice 16.5% return. 

Surprise Trader: In addition to reporting two consecutive quarters with double-digit surprises, Avis Budget Group (CAR) also has one of the largest Earnings ESPs that Dave has seen this earnings season. The rental car company reports after the bell on Monday, August 5… and its ESP is 15%! The editor expects that this Zacks Rank #1 (Strong Buy) will beat again next week, so he added CAR on Thursday with a 12.5% allocation. Read the full write-up for more.

Stocks Under $10: For the second straight day, this portfolio put together TWO double-digit gains thanks to strong quarterly performances. The Rubicon Project (RUBI) soared 35.7% after its second quarter report and solar panel company SunPower (SPWR) jumped 24.2%. Needless to say, these names were the top two performances of the day among all ZU portfolios.  

Options Trader: “While this could very well be a negotiating tactic, only to suspend them ahead of the next meeting, nobody doubts that the administration will impose them if necessary.

“So what does this mean for the economy and the markets? Quite frankly, not that much really. For one, no new tariffs are going on until September 1st at the earliest. In the meantime, our economy is strong. The markets continue to trade near their highs. And the outlooks for both look strong as well.

“Let’s be clear. Both countries want a deal. And it could be argued that China wants/needs a deal more than the U.S. But it’s clearly going to take a little more time.

“Regardless, the numbers show the U.S. will be just fine. And for what it’s worth, this dramatically increases the likelihood that the Fed will cut rates again in September.”
– Kevin Matras

All the Best,
Jim Giaquinto

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