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If Tax Cuts are Delayed, the Market Will Pay

The market's weekly winning streak came to an end today amid concerns over tax reform. Specifically, investors are not very happy about delaying a corporate tax cut until 2019 per the Senate’s plan released yesterday.

As a result, the Dow was off 0.17% to 23,422.2 on Friday and the S&P slipped 0.09% to 2,582.3. These indices have now declined for two straight sessions, though they again came well off their lows. The NASDAQ actually bounced back from the negative side to post a slight 0.01% gain to 6750.9. 


For the week, the Dow was off 0.5% and the S&P declined 0.2%, which broke eight weeks of gains for each of these indices. The NASDAQ was off 0.2% in the week as well, ending a six-week winning streak.

“Next week the story will likely be the same as this week. It’s all about the tax plan and the headlines revolving around the plan will move the market,” said Jeremy in Counterstrike. “If you remember the oil markets in 2016 and how they reacted to OPEC headlines, that’s what we could start seeing with the overall stock market.”

As stated yesterday, a pullback presents all kinds of opportunities for investors. Again today, the portfolios were busy buying and taking profits. Let’s get started:

Today's Portfolio Highlights: 

Counterstrike: This pullback is giving the portfolio a chance to make some long-awaited moves. On Friday, it sold half of one position, added to an existing one and bought a new stock. With First Solar (FSLR) moving to a Zacks Rank #3 (Hold), Jeremy thought this was a great chance to sell half of the allocation and bank a nice 31.4% return in just a month! He’ll hold onto the rest to see how high this stock can go. 

Meanwhile, it looks like Twitter (TWTR) has finally found a way to monetize its platform. The social media staple’s recent report was solid, including a positive earnings surprise and a 14% increase in average daily users. Jeremy is one of those users, and he viewed the recent pullback as a fantastic opportunity to take a 13% position in TWTR. 

The editor also made good on his promise to add more to the portfolio’s stake in engines giant Cummins (CMI). It has only been a week since he first added this stock with a smaller-than-usual 6% allocation, but today it hit Jeremy’s “magic number” of $168 so he added another 6% to make it a full position. Read the full write-up for more on all these moves. 

Insider Trader: Make it two buys in two days for the portfolio, as Tracey is seeing some “classic” insider buying activity at Hain Celestial (HAIN). Shares of this organics and natural products company are down 15% over the past month, but the insiders obviously believe that its turnaround plan is working. Following the most recent earnings report, the SVP & Chief Accounting Officer, the CFO and the CEO all took advantage of the cheap price and bought shares of their own company. Tracey sees some good signals in these moves, so she added HAIN to the portfolio on Friday with a 10% allocation. Learn about all of the portfolio’s moves today in the complete commentary. 

Technology Innovators: This new portfolio has its first winner. Taking profits on a stock that’s had a big run is a smart thing to do, which was exactly the move that Brian Bolan made with Universal Display Corp. (OLED) on Friday. The company was one of the portfolio’s inaugural picks on October 17 and today it reached a new all-time high around $175. The editor thinks it is ripe for some consolidation, so he sold it and banked a nearly 30% profit in less than a month. 

Meanwhile, First Solar (FSLR) might be a Zacks Rank #3 (Hold), but Brian is more interested in its strong quarterly report from late October. The company beat on the top and bottom lines, while also raising its guidance. Earnings estimates have been trending higher all year. The editor has been watching FSLR for a long time, and now he feels comfortable adding it to the portfolio since it is comfortably above the $60 resistance level that was such a tough hurdle in the past. Get more specifics in the full write-up. 

Momentum Trader: Tech has been under pressure the last few days, and yet Hortonworks, Inc. (HDP) is still lingering near highs after a breakout during a recent high volume day. Dave considers that a great sign, so he picked the stock up for the portfolio today after selling a couple of stragglers. HDP is a Zacks Rank #2 (Buy) company that provides an enterprise-grade data management platform to capture, store, process and analyze data. Read about all of today’s moves in the complete commentary. 

ETF Investor: The big boys of technology are having a great earnings season, and Neena expects them to continue performing well. The portfolio already has exposure to some of the hot sub-sectors of technology, and now the editor has found a perfect complement in Vanguard Information Technology ETF (VGT). This ETF has oversized exposure to some of the biggest tech companies, including Apple, Alphabet, Microsoft and Facebook. Make sure to read the complete write-up for more on this new addition. 

Value Investor: Shares of AdvanSix (ASIX) have soared this year and are near new highs, but it’s still got the value characteristics to be added to the portfolio. This small-cap chemical maker reported third-quarter earnings and sales that advanced 26% and 13%, respectively, year over year. Now, earnings are expected to rise 179% in 2017. Read the full write-up for a lot more specifics on this new addition. By the way, Tracey also sold TiVo (TIVO) today for a more than 5% return. 

Options Trader: "Anyway, the market was held back at the end of the week as differences between the Senate and the House tax plans emerged. Both chambers are still expressing confidence that this tax cut will get done this year. But the market has taken a slightly more cautious stance in the last few days.

"As I mentioned last week, when this does finally get done, I can envision a big relief rally ensuing. But the smart money, in my opinion, still remains bullish that tax cuts/reform gets done this year, without implementation delays, and the market continues its record advance. 

"Next week we’ll get more information on how the tax plan is progressing and if Congress is able to reconcile the differences on a plan they both desperately want to pass. 


"In the meantime, I expect the market to keep marching on. And if November and December are anything like last year (the S&P gained 5.30% in just those last two months alone), then this year is shaping up to go out with a bang." -- Kevin Matras 

Have a Great Weekend, 
Jim Giaquinto 
 

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