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Fed Sparks Relief Rally of More Than 2%

Jim Giaquinto

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That felt pretty good, didn’t it?

The Fed came to the rescue again on Tuesday, striking a dovish tone that sparked one of the best sessions of the year for the market.

Fed Chair Jerome Powell said today that the central bank would “act as appropriate to sustain the expansion.” Though he didn’t say it in as many words, the market translated it as “a rate cut is coming!”

As a result, each of the major indices soared by more than 2% on Tuesday and finished at session highs. We also enjoyed some softening of trade rhetoric from China and Mexico.

Fittingly, the NASDAQ had the strongest day on a percentage basis with a rally of 2.65% (or about 194 points) to 7527.12. So the index got back about a fourth of what it lost throughout May, which goes to show how strong today’s uptrend was AND how much it has slipped in the past month.

Technology was crushed on Monday on regulatory concerns for some of the big FAANG names, but this space led the way higher today.

Amazon and Facebook gained more than 2% each and Alphabet was up more than 1.6%. Those advances were way less than what they lost yesterday, but regulatory issues for these companies aren’t going away anytime soon. At least they stopped the bleeding for now.

The S&P recaptured 2800 at one fell swoop with a surge of 2.14% to 2803.27. And the Dow jumped 2.06% (or more than 512 points!) to 25,332.18.

It seemed like the Fed comments snapped the market out of its daze and made it realize just how oversold it became in the past few weeks.

So is this rally sustainable or is it just a ‘dead cat bounce’? That’s the big question right now and it will take a few more days to get the answer. But after this big bounce, investors can finally look forward and say “Bring it on!”

Today's Portfolio Highlights:

Counterstrike: Today's relief rally convinced Jeremy to take his profits in the doubled-leveraged ProShares Ultra VIX Short-Term Futures ETF (UVXY), which he added a month ago in preparation for the May selloff. It was a pretty good move that brought the portfolio a return of 11.9%. The editor also put on a small long position with a 3% allocation in Keysight Technologies (KEYS), a Zacks Rank #1 (Strong Buy) provider of electronic measurement solutions to the communications and electronic industries. It beat by 25% in its most recent report and took off higher. But it has since come back to earth, leaving the portfolio with a nice setup. Read the full write-up for more on today’s moves.

Income Investor: The growth and expansion plans at ONEOK (OKE) remain on track for this year and next. This diversified energy company has a yield of 5.4% and boasts 15 consecutive annual dividend hikes. Maddy thinks that yield will continue to rise if its strategic growth plans stay on schedule. The editor likes this company’s chances of reaching its goals and also appreciates its share price jumping 20% year-to-date, which easily beats the S&P. Therefore, she added OKE on Tuesday. Read the write-up for more.

Insider Trader: When a CEO buys $20 million worth of his own company despite it declining for the past five years, you know that he’s making a statement. Such was the case with Capri (CPRI). Shares of this apparel and accessories retailer hit new lows last week, but that didn’t keep the CEO from buying three times in just the past few days (twice on May 31 and once yesterday). In addition, the CFO bought today! These guys were sending the message that the stock was oversold… and Tracey received it loud and clear. She added CPRI on Tuesday with a 10% allocation. Get more specifics in the complete commentary.

Stocks Under $10: The May selloff has opened ample opportunities to buy beaten down stocks, which was the idea behind Brian Bolan’s addition of The Container Store (TCS) on Tuesday. This Zacks Rank #2 (Buy) specialty retailer of storage & organization products was $9 at the start of the month… and the editor thinks its headed back there again. He considers this a classic case of a stock that was walloped despite an earnings beat a few weeks back and could very well become a 20% winner in short order. Brian also likes the valuation. Learn more about this new buy in the complete commentary.

Technology Innovators: The portfolio was underweighted headed into Tuesday’s session, so Brian Bolan wanted a safe pick at this time of volatility. Well, you can’t get more safer in the tech space than software giant Microsoft (MSFT). This Zacks Rank #2 (Buy) is a mega-cap that pays a dividend. Does anything else need to be said about good old MSFT? If so, you can read the full write-up for more.

Zacks Short List: The portfolio swapped three positions this week. The stocks that were short-covered include:

• Chegg (CHGG)
• Advanced Disposal Services (ADSW)
• Shake Shack (SHAK)

The new buys that replaced these names are:

• Baidu (BIDU)
• salesforce.com (CRM)
• Zayo Group Holdings (ZAYO)

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

Until Tomorrow,
Jim Giaquinto

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