Solid Start to February as Stocks Stage Partial Rebound

Stocks recovered some of last week’s sharp selloff on Monday despite the coronavirus continuing to spread. A better-than-expected manufacturing report helped the performance. 

Perhaps some investors are beginning to see the recent pullbacks as a buying opportunity, which was certainly not the case on Friday when the major indices each lost more than 1.5%. 

The NASDAQ was the only index still in positive territory when the dust settled last week, and today it came the closest to completely recovering from the pullback. 

It jumped 1.34% (or 122 points) on Monday to 9273.40, which puts it only a stone’s throw away from getting back all of Friday’s 1.59% slump. 

The S&P couldn’t rebound as much, but at least its back in the green for 2020. The index advanced 0.73% to 3248.92 and still needs about 1% to completely recover. 

The Dow saw the biggest plunge on Friday by nearly 2.1%, and it got approximately a quarter of it back today with a gain of 0.51% (or about 144 points) to 28,399.81. It's still in negative territory for the year.

The coronavirus continues to be a major concern for the market, which will remain susceptible to selloffs as long as it continues to spread. But it will also be poised for bounce-backs, especially when there’s some good economic data like the ISM manufacturing report. 

The survey reached 50.9% for January, which beat expectations and the previous month’s 47.2%. Most importantly, it was the first expansion (over 50) since July, breaking five straight months of contraction (beneath 50).

Meanwhile, the final FAANG stock reported after the bell today. Alphabet beat on earnings but came in a bit soft with revenue. As a result, shares are down approximately 4.7% afterhours, as of this writing. 

The FAANGs may be done, but earnings season is far from over… and its been solid so far. 

In fact, according to Sheraz Mian’s most recent Earnings Trends article: “The picture emerging from the Q4 earnings season is one of steady improvement in the overall picture, with an above-average proportion of companies beating top-line expectations and estimates for the current and coming periods holding up.”  

However, we don’t yet know how much of an impact the outbreak will have on corporate earnings moving forward. 

Today's Portfolio Highlights:

Technology Innovators: Many chip stocks have been reporting solid quarters, so Brian would like to go with the flow. He added MagnaChip Semi (MX) on Monday, which is a Zacks Rank #1 (Strong Buy) designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. The company reports after the bell on February 13 and analysts are expecting 14 cents on $199 million. The editor thinks a strong quarter could get this stock back to its highs and then some. Read the full write-up for more on today’s addition of MX.

Black Box Trader: The portfolio replaced six positions in this week’s adjustment. The stocks that were sold included:

• WPX Energy (WPX)
• Morgan Stanley (MS)
• Berry Global Group (BERY)
• Commercial Metals Co. (CMC)
• Murphy Oil (MUR)
• Devon Energy (DVN)

The new buys that replaced these names are:

• D.R. Horton (DHI)
• Darling Ingredients (DAR)
• KB Home (KBH)
• PulteGroup (PHM)
• Spirit Airlines (SAVE)
• Tenet Healthcare (THC)

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

Counterstrike: "Fear can do funny things to market. Friday the market was in full-fledged panic as traders were nervous what the Coronavirus might bring over the weekend. However, all we saw were a few more cases outside China and what we expected in China, steady spreading. It didn’t get “worse” so when futures opened last night there was some buying that continued into the New York open.

"Those that bet the world would end over the weekend were forced to cover, taking stocks higher. The S&P shot up to the 3265 area and then sold after some more virus headlines came out. Fear is out there and will remain, but the market is starting to adjust to what the virus can actually do. Which is, for now, something that seems to be contained to China.

"An outbreak outside of China of course could happen, but until then I think the market will be more rational with its fear of the virus. That was shown today as the S&P was up 0.73% and the Nasdaq was up 1.50%." -- Jeremy Mullin, who sold Baidu (BIDU) today for a gain of 7.6%.

All the Best,
Jim Giaquinto

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