Fed Takes Center Stage as Stocks Take a Break

With a Fed policy update scheduled for tomorrow and a disheartening trade story ruffling feathers today, stocks took the opportunity on Tuesday to take a break from the recent rally.

Unfortunately, the indices wasted what could have been another strong session as stocks looked poised to continue the week-long uptrend.

The NASDAQ squeaked out a gain of 0.12% to 7723.95, while the S&P was just below breakeven with a loss of 0.01% to 2832.57. These indices were both up more than 0.5% at their best points of the day.

The Dow soared approximately 200 points at its zenith of the session, but it ultimately gave it all back and finished with a decline of 0.10% to 25,887.38. And this time it didn’t have Boeing to blame, as the aerospace giant inched forward 0.3% after wreaking havoc in the index for the past couple of weeks.

The market was shaken a bit by a Bloomberg News report that said U.S. officials were worried that China may not follow through on some of the trade concessions. However, there weren't many specifics and other reports took a more encouraging tone that the discussions were in the final stages.

As long as there’s no resolution on the trade issue with China, we will be susceptible to more erratic moves like today’s based on vague headlines. Let’s hope that the positive news reports are also the accurate ones, because the market is expecting a deal to be signed in the next few weeks.

Tomorrow we get the first Fed policy update since January, which was when Jerome Powell became the market’s favorite guy by promising that the Committee would be “patient” in future rate increases. It was much more dovish than the previous plan that had rates rising on a predetermined schedule regardless of market sentiment. Most importantly, it’s probably the biggest reason why stocks have started this year on such a strong note.

We expect the Fed Chair to be just as dovish tomorrow. Nobody sees a rate hike. In fact, some investors believe the Committee may reduce the “dotplot” to 1 hike from 2 for 2019… and maybe even scrap it altogether for this year. We’ll see about that.

The bottom line is that investors will be paying close attention to the statement’s language and fully expect our friends at the Fed to remain just as patient as they promised back in January.

Today's Portfolio Highlights:

Home Run Investor: The $17.50 range appears to be a tough nut to crack for Steelcase (SCS). This maker of work environment products has stalled out at that level and is reporting earnings tonight. Brian Bolan doesn’t want to take the risk of holding the stock through the report, especially since he has a nice double-digit profit. Therefore, the editor sold SCS on Tuesday for a more than 16% return in about two-and-a-half months. Be on the lookout for a replacement pick tomorrow.

Surprise Trader: Athletic apparel is one of the hottest parts of the retail market right now… and it just so happens that the biggest and most recognizable athletic shoe name reports this Thursday after the bell. Nike (NKE) is a Zacks Rank #2 (Buy) with a positive Earnings ESP of 3.93% for that upcoming quarter. Dave added the stock on Tuesday with a 12.5% allocation. By the way, the editor also sold Live Nation Entertainment (LYV) today for a 10.4% profit in less than a month. Read the full write-up for more. 

Stocks Under $10: The portfolio sold Israel Chemicals (ICL) about a year ago for a small profit. However, Brian Bolan admits that he sold it too soon as the specialty fertilizers and phosphates company subsequently took off. But he's got a second chance! This Zacks Rank #2 (Buy) has beaten the Zacks Consensus Estimate for six straight quarters, while today’s nearly 1% decline has made for a good entry point. In addition, ICL fulfills the editor’s goals of providing diversification for the portfolio and getting closer to fully invested at 15 names. Read the complete commentary for a lot more on this new buy.

Counterstrike: It was always Jeremy’s intention for Plantronics (PLT) to be a quick trade for the portfolio that could hopefully get to just under $50. Well, this global leader in audio communications is now a little over $50 and is coming back into resistance. This was the perfect time to sell PLT and take an 11.8% return in a little over a month. The editor considers any double-digit gain in such a short time to be a nice win for the portfolio.

Zacks Short List: This week's adjustment included only one swap. The portfolio short-covered Baidu (BIDU) and replaced it by adding MercadoLibre (MELI). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Have a Great Evening,
Jim Giaquinto

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