Stocks Relieved as Tariffs Could've Been Worse

Yes, President Trump did impose tariffs on $200 billion worth of Chinese goods last night. But the tariffs are at only 10% for now and would rise to 25% at the end of the year. The market was concerned that they would immediately be at 25%. So in other words…it was good news (sort of). Good enough, at least, for the market to enjoy a nice rally on Tuesday.

“The tariffs were only set at 10%, with the percentage going up to 25% on January first. This was a positive signal to the market that says there will be 3 months of negotiation time,” said Jeremy in Counterstrike.

“For now, the market just doesn’t seem concerned that the tariffs will hurt the economy before some trade deal gets worked out. Its clear after today’s move that the initial 25% rate was priced into market, so 10% is actually good. Its rather confusing, but the price action is very bullish again.”

The NASDAQ got a little more than half of yesterday’s loss back with an advance of 0.76% to 7956.1. The index plunged 1.43% yesterday on fears that the tariffs would impact Apple, but the country’s first trillion-dollar company closed higher on Tuesday. Netflix surged nearly 5% after a strong showing at the Emmy’s last night and Amazon helped the index with a rise of 1.7%.

The Dow is most susceptible to trade issues, so it was most relieved by the tariff news. The index jumped 0.71% today (or nearly 185 points) to 26,247 after snapping a four-day winning streak yesterday.

However, most eyes will be on the S&P in the coming days. Maybe its bad luck to mention it, but the index is once again about 10 points away from reaching an all time high. It advanced 0.54% to 2904.3. The record it at a little over 2914, reached late last month.

The retaliation from China was also not as severe as feared, lending further support to today’s rally. The hope is that these latest salvos will bring the two sides to the negotiating table with a serious intent to figure things out. We’ll see what happens, but there’s not a lot of optimism right now. And who knows what will happen if the President goes forward with $267 billion MORE in tariffs.

Today's Portfolio Highlights:

TAZR Trader: The two-day Investor Event for Alibaba (BABA) concludes today…and Kevin likes what he’s hearing. The Chinese e-commerce giant didn’t raise its revenue guidance, but it did offer several better-than-expected updates on key initiatives. Also, co-founder and outgoing Executive Chairman Jack Ma gave a vote a confidence to his successor CEO Daniel Zhang. The editor is expecting some upward estimate revisions to come out of this event, so he added Alibaba (BABA) on Tuesday. Read the full write-up for more on this addition, including the improving key initiatives and Mr. Ma’s take on the trade conflict between the U.S. and China.

Large-Cap Trader: Chip stocks have been under a lot of pressure the past few weeks...way TOO MUCH pressure as far as John Blank is concerned. While prices have fallen for the moment, the editor feels that the bad news was priced in a while ago and is now just going too far. There’s a great opportunity here to add more to existing positions of innovative companies that are bound to move higher in the near future. He took half of the portfolio’s 13% on the sidelines and added to these names:

• Western Digital (WDC) – added 2.6% to existing position
• CDW (CDW) – added 1.9% to existing position
• Lam Research (LRCX) – added 1.9% to existing position

Now the portfolio has more skin in the game once the market gets its bearings and an analyst upgrade cycle begins heading into the lucrative holiday shopping season. Read the full write-up for more on these moves and John’s overall view of the market.

Stocks Under $10: It’s a big deal when a company finally turns profitable, and an investor should get in before that shift to take full advantage. Brian Bolan thinks that NeoPhotonics (NPTN) is one such company on the verge of profitability, as evidenced by improving year-over-year trends in earnings expectations. Most encouragingly, next year’s loss is now expected at only a penny per share, improving from a loss of 9 cents just two months ago and an expected loss of 61 cents this year. In addition, this Zacks Rank #2 (Buy) optoelectronic products maker will continue to benefit from the constant demand for more bandwidth, which will facilitate the build out of fiber networks for years to come. Read the complete commentary for a lot more on this new addition.

Zacks Short List: The portfolio changed three names in this week's adjustment. The short-covered positions that left the service were:

• Ctrip.com Intl (CTRP)
• Thompson Reuters Co (TRI)
• Square, Inc (SQ)

The new buys that replaced these names are:

• Live Nation Entertainment (LYV)
• Etsy, Inc (ETSY)
• Guidewire Software (GWRE)

Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Until Tomorrow,
Jim Giaquinto

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