Dow and S&P End Four-Day Skid after Fed Statement
It took a Fed statement on Wednesday to snap the market out of its sour September mood and finally end a four-day losing streak. The major indices were each up approximately 1%.
Basically, the economy is improving enough that scaling back the asset purchases “may soon be warranted”, perhaps as soon as the next meeting since the inflation and employment mandates are close to being met. For now, the Committee was unanimous in keeping rates near zero.
“To summarize FOMC: Tapering is coming, but one month later than the market expected,” said Jeremy Mullin in Counterstrike. “The language hinted at a $20B taper in December, instead of November, which was enough for the market to rally after the statement came out. In reality, a month difference should not move markets, but the buy signal was triggered with the “no taper” language.”
The S&P jumped 0.95% on Wednesday to 4395.64, while the Dow increased 1% (or about 338 points) to 34.258.32. These gains ended four consecutive days of losses for the indices. The NASDAQ rose 1.02% (or around 150 points) to 14,896.85. Stocks are still lower for the week with two sessions to go.
But the Fed was only one concern this week. Now that the statement is behind us, investors are still nervous about China’s largest property developer Evergrande, which is in danger of defaulting.
The company said it resolved a $36 million interest payment due tomorrow, which made enough room for the market to rise on Wednesday. However, an even bigger payment is due at the same time.
Investors are concerned that such a problem in the world’s second-biggest economy could have an impact on the U.S., especially at a challenging time when the delta variant is limiting the economic recovery.
Tomorrow will be interesting. Stocks often have big moves on the day after the FOMC meeting, and the Evergrande situation could exacerbate the volatility. We’ll also be getting the jobless claims number on Thursday.
Today's Portfolio Highlights:
Home Run Investor: It looks like Exp World Holdings (EXPI) could have a nice post-earnings drift higher, so Brian bought the stock on Wednesday to take part in the advance. This Zacks Rank #2 (Buy) provides cloud-based estate brokerage services. More specifically, it uses blockchain to record home sales and provide services to brokers. The editor was very impressed with EXPI’s topline growth of 182% in its most recent quarter, while earnings beat the Zacks Consensus Estimate by 380%. The valuation is rather high given its sales growth, but margins are slowly improving with plenty of room to continue rising. Make sure to read the complete commentary for a lot more on this new addition. By the way, Brian also sold Rada Electronics (RADA) today to make room for the new entrant.
TAZR Trader: Even if the Fed sounds “lovey-dovey”, Kevin said yesterday that he would add more to the portfolio’s recent position in ProShares UltraPro Short QQQ ETF (SQQQ). Regardless of whatever kind of kneejerk reaction comes after the statement, the editor thinks the market is headed lower in the near term. Well, the Fed statement did send stocks higher by 1% on Wednesday, so Kevin stuck to his word and added more SQQQ today. Read the full write-up for more on his analysis moving forward.
Technology Innovators: This portfolio easily had the top performer among all ZU services on Wednesday as Celestica (CLS) soared 17.5%. Brian added this electronics manufacturing services company back in late July after posting its eighth straight positive surprise. Today we found out that CLS raised its 2022 outlook and also entered into an agreement to acquire PCI Ltd. for $306 million in cash. CLS is currently up nearly 7% in the portfolio since being added less than two months ago.
Options Trader: "(Stocks) were already up from the opening bell, but added to their gains after the Fed said they would likely begin tapering their bond-buying “soon,” which many have interpreted as their next meeting in November.
"The market cheered the last time the Fed hinted that the tapering was likely to come sooner rather than later. And the market’s reaction was no different this time.
"Why so happy about tightening monetary policy (albeit just a little)?
"Because 1) it shows the Fed’s confidence in the recovery, and 2) it shows they won’t let inflation get too hot before acting. And that’s reassuring to the market.
"As for rates, those expect to remain near zero for the foreseeable future." -- Kevin Matras
Have a Good Evening,
Jim Giaquinto
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