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Trade Anxieties Return with a Vengeance

Jim Giaquinto

The May episode of the Zacks Ultimate Strategy Session is now available for viewing! Tune in to this “must-see” event when Kevin Matras, David Bartosiak, Brian Bolan and Sheraz Mian discuss the investment landscape from several angles.

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• Sheraz and Brian Agree to Disagree on whether ‘Sell in May and Go Away’ makes sense this year
• Kevin answers questions about trading differently with the market at all-time highs, and rules to use for cutting losses in Zacks Mailbag
• Sheraz and David choose one portfolio to give feedback for improvement
• And much more

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The renewed trade anxieties finally sunk their teeth into the market on Tuesday, sending each of the major indices lower by more than 1.5%.

Stocks again finished the session well off its lows. But unlike yesterday, the bounce never came close to getting us back to breakeven.

Nevertheless, the Dow soared approximately 175 points in the final moments. Not bad at all! Unfortunately, it plunged about 650 points at its worst, so the index still declined by a hefty 1.8% (or around 473 points) to 25,965.09.

The NASDAQ was the worst performer with a drop of nearly 2% to 7963.76, while the S&P slipped 1.65% to 2884.05. Many investors are concerned that a trade war will stunt global growth. However, the broad-based selling suggests that some folks were just taking profits after a string of good news for the market, including strong data for GDP and employment along with a better-than-feared earnings season.

There was a nagging suspicion that the modest pullback yesterday wasn’t enough. The market had priced in a trade deal long ago… and then suddenly those encouraging meetings were in danger of completely falling apart. The less than 0.5% declines for the indices on Monday didn’t seem to reflect the surprise and frustration of this trade whiplash.

In a couple Tweets this weekend, President Trump threatened to raise tariffs to 25% from 10% on $250 billion worth of Chinese goods, while also placing new tariffs on $325 billion worth of additional goods. According to U.S. officials, this tougher stance was taken after China attempted to walk back some of the concessions made during the negotiations.

But all is not lost. The two sides are scheduled to meet for more talks in Washington later this week. Perhaps this recent kerfuffle will prove to be nothing. The market still hopes that something gets done, but its confidence has been shaken.

Today's Portfolio Highlights:

Healthcare Innovators: One of the most dangerous things about cancer is how hard it can be to detect the disease. But companies like Arcus Biosciences (RCUS) specialize in finding and fighting cancer… even if the body is tricked into hiding its presence. Kevin likes this emerging-stage biotech because analysts are giving good reviews to AB928, its lead candidate, and because of its new collaboration with Strata Oncology. But most of all, the editor likes its CEO Terry Rosen Ph.D., who sold his previous company to Bristol-Myers Squibb in early 2015 for $1.25 billion. Kevin calls this a “betting on the jockey” move and warns that it is highly speculative. Read the complete commentary for a lot more on RCUS.

Counterstrike: Jeremy has always been skeptical that we would get a real trade deal. Earlier this month, he added the double-leveraged ProShares Ultra VIX Short-Term Futures ETF (UVXY) just in case the S&P took a sharp step backward. It certainly paid off on Tuesday. The fund soared nearly 25%, which easily made it the best performer among all ZU names today.  

Zacks Short List:
The portfolio swapped two names this week. It short-covered Baidu (BIDU) and Vertex Pharma (VRTX). These names were replaced through the additions of Neurocrine Biosciences (NBIX) and Live Nation Entertainment (LYV). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

All the Best,
Jim Giaquinto

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