Tariffs and Tweets Ruin Weekly Rally

We knew this week’s rally was susceptible to a negative news headline or presidential tweet… and today we got both of them.

As a result, the market just completed its fourth straight week of losses.

On Friday, the NASDAQ plunged 3% (or nearly 240 points) to 7751.77, while the S&P slipped 2.59% to 2847.11. The Dow slumped 2.37% (or about 623 points) to 25,628.90.

Thanks in large part to a strong U.S. consumer, the indices each came into the session with gains of 1% and in a good position to break their losing streaks. Instead, they all lost well over 1% this week, as the challenging month of August continues unabated.

It all got started on news that China would place new tariffs of between 5% and 10% on $75 billion worth of U.S. goods. They will be implemented on Sept 1 and Dec 15.

The market didn’t like that retaliation, but the big blow came just a little while later via a Twitter storm from President Trump.

He “ordered” U.S. companies to “immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA”.

The President also promised a response to this morning’s new tariffs from China, which we found out after the bell is an increase in tariff rates on Chinese imports.

Now, any progress that could have been made with future talks is called into question. The trade conflict escalates at a time when the market is fretting over inverted bond yields and concerned about recession.

By the way, do you remember what was supposed to be the big story of Friday? Fed Chair Jerome Powell gave his speech today at the Jackson Hole Symposium. As many expected, he didn’t break any new ground and re-iterated that the Fed would act appropriately to keep this economy moving amid slowing global growth.

Of course, the President had a few choice words for the Chair on Twitter as well.

That’s not how we wanted to end the week, especially since the market seemed poised to break its three-week skid. It's the price you can pay when we’re at the mercy of headlines and tweets in an uncertain time.

But that's a double-edged sword. Good news could send stocks higher with as much gusto. Let’s hope we get some next week… we’re certainly due for it.

Today's Portfolio Highlights:

Insider Trader: Life as a public company hasn’t been very kind to Covetrus (CVET), which is down 68% since its IPO in February. This animal-health company has missed two quarters in a row now. However, analysts believe the selloff in overdone… and so do the insiders. This week, the CEO, the CFO and the General Counsel all bought shares of their own company. Tracey thinks the damage has been done and that most of the risk has been priced in. Though the name will likely be volatile, the editor added CVET on Friday with a 10% allocation. Read the complete commentary for a lot more on this new buy.

Counterstrike: This latest trade-induced selloff has Jeremy moving toward protection. Given all the fears and emotions tied into this issue right now, the editor figured that the VIX was a good place to find shelter. Therefore, he added a 5% allocation in the ProShares Ultra VIX Short-Term Futures ETF (UVXY). This is one of his favorite plays for days like this as it will advance as concerns rise. The portfolio also decided to take some profits today by selling a third of its 3X Long Gold ETN (UGLD) position for a 26.1% gain in less than 2 months. Read the full write-up for more.

Technology Innovators: The sharp selloff and vague Fed comments make this a good day to secure some profits amid an unpredictable and volatile environment. Fortunately, Brian has some big returns to take! He decided to cut ties with Enphase Energy (ENPH) as this solar company has already soared higher. The stock was sold for a 67.8% return in just about a month and a half. Brian also sold Microsoft (MSFT) for an 8.6% return in more than two months as the software giant hasn’t done much since its earnings report. He also sold the riskier OptimizeRx (OPRX).

Have a Great Weekend,
Jim Giaquinto

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