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Stocks Slip From Record Highs Ahead of FOMC Announcement

Well, we can’t make new highs every day, especially when we’re less than 24 hours away from a big Fed statement that could be a market mover. So the major indices took a small step back on Tuesday, ending three straight days of record highs for the S&P.

The index slipped 0.20% to 4246.59. The S&P hit its first new record since early May on Thursday and then gained in the subsequent two sessions. The Dow dropped 0.27% (or about 94 points) to 34,299.33 for its second straight loss, as recovery names cooled off along with inflation fears.

For the first time in seven sessions, the NASDAQ underperformed its counterparts. The index slid 0.71% (or about 101 points) to 14,072.86. But what a ride it was! After weeks of being in the doghouse, investors finally rediscovered tech and sent the NASDAQ to its first new record since late April in yesterday's session.

Speaking of inflation fears, investors are gearing up for tomorrow’s FOMC announcement and Fed Chair press conference. They won’t be making any changes to the monetary policy, but there could be some differences in the rhetoric that investors will be watching.

Simply put, if Chair Powell & Friends are too hawkish, then we’d be in danger of another ‘taper tantrum’. However, if they’re more reserved (as is expected), we should be able to continue grinding higher through the slow summer months.   

In other news on Tuesday, retail sales for May dropped 1.3% over April, which was worse than expected and marks the first decline since February. However, April sales were revised higher to 0.9%. Meanwhile, the producer price index for final demand jumped 0.8%, which was higher than expected and the latest sign of rising inflation.

The Fed has said several times that any uptick in inflation is ‘transitory’. Investors will be watching for any updates on this issue in tomorrow’s statement.

Today's Portfolio Highlights:

Headline Trader: U.S. lawmakers are likely to approve $54 billion in funding for the production and research of semiconductors and telecommunication technology. Dan thinks that Taiwan Semiconductor Manufacturing Company (TSM) will be a big beneficiary of this money, especially as it works on another $12 billion factory in Arizona. But even without this funding, TSM is the largest semiconductor manufacturer on earth. In fact, the editor considers it to be “the backbone of the fourth industrial revolution”. He believes that the chip shortage is ramping up demand in the space, leaving companies (like TSM) in a fantastic position to get back to all-time highs. The portfolio added the stock on Tuesday with an 8% allocation. Dan’s next price target for TSM is at $140 after finally breaking through prior resistance at $120. Read the full write-up for a lot more on this new addition.

Counterstrike: Despite all the sluggishness out there, Jeremy has been looking for a new name to add. On Tuesday, he picked up Thor Industries (THO), a Zacks Rank #2 (Buy) RV manufacturer that saw demand soar during the pandemic. It’s recent quarterly report included an earnings beat of 39% and a $14 billion order backlog, so demand is still strong even with covid on the way out. However, the stock has dropped 10% since the report and is off nearly 30% from the March highs. The editor decided to buy a small, 4% position now in THO and will add if the 200-day is taken back. He expects the stock to move back to the 50-day and perhaps make new highs later this year. The service also sold Invesco Solar ETF (TAN) today for a 10.9% profit in a little over a month and got out of Canada Goose (GOOS) with a slight loss after disappointing earnings and a drop in its Zacks Rank. Read the full write-up for a lot more on today’s moves.

Zacks Short Sell List: The portfolio swapped out two names in this week's adjustment. The stocks that were short-covered included Magnite (MGNI, +3.8%) and Bumble (BMBL), while the new buys that filled these spots were StoneCo (STNE) and T-Mobile US (TMUS). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide. By the way, this portfolio had a top performer today as the short in Peloton Interactive (PTON) rose 5.3%.

All the Best,
Jim Giaquinto

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