Stocks Nearly Recover from Tariff Tweet Turmoil

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President Trump’s sudden tariff Tweets threatened to take all the air out of the market on Monday, but then stocks mounted an impressive rebound that almost got the major indices back to breakeven.

The Dow plunged nearly 500 points at the open after the President warned that he would increase tariffs on $250 billion in Chinese goods to 25% from 10% as soon as Friday. He’s also thinking about putting tariffs of 25% on $325 billion worth of additional goods.

The news came as quite a shock. The market has been told time and time again that negotiations were going well and a deal was imminent.

But once the initial shock wore off, the index spent the whole day recovering from the morning dip since investors still seem confident that a deal will eventually get done. The Dow finished lower by only 0.25% (or about 66 points) to 26,438.48.

The other major indices took the same trajectory. The S&P was off by 0.45% to 2932.47 and the NASDAQ declined 0.50% to 8123.29. Both of these indices reached new all-time highs last week, and remain within striking distance of getting back thanks to today’s rebound.

So what happened? We’ve been hearing that all the negotiators were best friends and a deal could be reached in the next few weeks… maybe as early as this Friday! Well, we knew that the longer it took to get an agreement, the more chance that something could derail the whole process.

Fortunately, nothing has been derailed yet. The plan was always to have more meetings between the countries in Washington this week, and those plans are still proceeding despite the tough trade talk. Furthermore, Chinese Vice Premier Liu He will apparently be part of the discussions, which had been called into question after today’s drama.

So did the trade deal die today? Or were these Tweets some sort of negotiating tactic? It’s obvious that the market doesn’t think it’s time to throw in the towel. The comeback on Monday showed that optimism is still high. And why wouldn’t it be? We’re in the late stages of a better-than-expected earnings season, while Q1 GDP came in at 3.2% and the April employment report added more than 260,000 jobs.  

But it was a good reminder that nothing is a sure thing until the U.S. and China sign on the dotted line…

Today's Portfolio Highlights:

Surprise Trader: The earnings trend for video game developer Electronic Arts (EA) has turned the corner into a positive direction, which leaves Dave feeling pretty good about its report after the bell tomorrow. Plus, the stock has an impressive Earnings ESP of 11.35% for the quarter. The editor added EA on Monday with a 12.5% allocation, but first he made room by selling WillScot (WSC) for a 5.2% return in less than a week. See the complete commentary for more.

TAZR Trader: The subscription economy is growing sharply with no end in sight, so Kevin decided to buy THE meta-provider of cloud services in this area. Zuora (ZUO) is a Zacks Rank #2 (Buy) that the editor has been watching since it IPO’d last year. With several institutions bullish on ZUO, he felt this was a good time to add the stock with a 10% allocation. Learn more about this buy in the complete commentary.

Black Box Trader: This week's adjustment replaced more than half of the portfolio. The six names that were sold today include:

• KEYW Corp. (KEYW)
• PulteGroup (PHM)
• PACCAR (PCAR)
• Devon Energy (DVN)
• Diebold (DBD)
• Cenovus Energy (CVE)

The new buys that filled these spots are:

• Cummins (CMI)
• Meritor (MTOR)
• Arconic (ARNC)
• Taylor Morrison Home Corp. (TMHC)
• Principal Financial Group (PFG)
• Hertz Global Holdings (HTZ)

Read the Black Box Trader's Guide to learn more about this computer-driven service designed to take the emotion out of investing.

All the Best,
Jim Giaquinto

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