Stocks Take The Powell Plunge

One of the "perks" of being the Fed Chair is that you occasionally get blamed for a market selloff. That’s what happened to Jerome Powell on Tuesday as the new boss met with Congress for the first time. Stocks seemed willing to continue rallying for a third straight day before the testimony, but then it took a header and wasn’t able to recover.

“The culprit here was what’s being called “The Powell Put” as in newly minted Fed Chair Jerome Powell,” said Dave Bartosiak in Surprise Trader and Momentum Trader. “During his first testimony on Capitol Hill he was asked what would cause the Fed to hike more than three times this year. His answer wasn’t the rejection of the notion that the market wanted to see. The immediate reaction was bond yields and the dollar spiking while the market dropped."

Mr. Powell didn’t say anything surprising. In fact, it’s a scenario that we’ve been seeing a lot recently. He said that the economy is strong and there would be no change in the plan for hiking rates in 2018. And he’s not going to be bullied into altering the plan by market volatility. The fear of some market watchers is that he’s open to more than the expected three hikes this year.

By the end of the day, the S&P had declined 1.27% to 2744.3, while the NASDAQ slipped 1.23% to 7330.4. The Dow was off 1.16% to 25410.

In the portfolios, Stocks Under $10 bought a low-priced biotech and Surprise Trader sold a position for a double-digit profit. Also, Short List swapped out a holding. Read all about it in the highlights section below:

Today's Portfolio Highlights:

Surprise Trader: When adding Enova (ENVA) late last month, Dave called this online financial services company “the most attractive opportunity I’ve seen in weeks”. The stock lived up to its hype because the editor sold it on Tuesday for a gain of 28.1% in just one month. The portfolio also got out of Total Fina (TOT) and KAR Auction (KAR) for returns of 4% and 3%, respectively. Dave plans to add some new names later in the week.

Stocks Under $10: The portfolio has been enjoying a lot of success recently in low-priced biotech, so Brian Bolan decided to add another one on Tuesday. He picked up Stonebridge Bio (SBBP), a British biotech that focuses on ultra-orphan drugs. The editor likes that the company recently completed a 5M share offering, so it’s price has already moved to around $6 from $9. The decline gave him a great opportunity to add the stock, which one firm expects to move all the way to $14 within the year. Plus, this British company isn’t beholden to the same pattern of quarterly earnings releases as American companies are. Read the full write-up for a lot more on this new addition, including news on a deal that could be a big winner down the road.

Zacks Short List: The portfolio only swapped out one name this week. It short-covered Incyte Corp. (INCY) and replaced it by adding Agnico Eagle Mines (AEM). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Counterstrike: “Today was the day traders have been waiting for as Powell testified in front of the hill. The transcript was out before the open as markets remained firm, putting in new highs for the week. However, when Q&A started after the open, some hawkish comments brought sellers into stocks. Rates started to rise along with the VIX, and the indices went into the red. The verdict was that the Fed will be a bit more hawkish.

“To sum up what happened today, the Fed will continue to raise rates in order to contain inflation. This means event like CPI and PPI will be market movers for the rest of the year. If inflation ticks higher expect stocks to sell off. Inflation stagnates, expect stocks to rip. The damage done today was minimal considering the big gains we’ve seen over the last six trading days.

“I expect some choppiness is coming to the indices. There are market participants that believe rates going higher will lead to stocks going lower (the bears). Then there are participants that believe earnings and global growth are far too strong and stocks should go higher (the bulls). While the battle over the last week was won by the bulls, the war is far from over.” – Jeremy Mullin

All the Best,
Jim Giaquinto

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