Solid Earnings Take Backseat to Rate/Tech Fears

Earnings season is doing its part so far...but not so much the market. 

All signs point to a great quarter with total earnings for the S&P jumping more than 16.5% from the previous year. Up to now, reports have been mostly positive as we enter one of the busiest weeks of the season. 

But the market just can’t get its mind off rising rates and concerns about tech. These issues started making an impact in the middle of last week, and the weekend didn’t do much to calm the fears. As a result, the major indices had a choppy Monday session that finished mostly lower. 

The NASDAQ, of course, is taking the brunt of tech concerns, though the impact is being felt all over due to how important the sector has been for the bull market. Tech got a one-two punch last week from Morgan Stanley warning of soft iPhone sales AND Taiwan Semiconductor’s concerns of weak demand for smartphones. The index had the most severe pullback on Monday, though it was only a loss of 0.25% to 7,128.6. 

The Dow started last week with a pair of 200-point gains, but it hasn’t closed on the positive side since. It was down 0.06% today to 24,448.7 for its fourth straight day in the red. The S&P managed a rise of 0.01% to 2670.3. 

Along with concerns about tech, the market continues to watch the 10-year Treasury note as it continues to inch its way toward 3% (more on this in the highlights section below). 

The market will have a ton of earnings reports to digest this week, including some of the biggest tech names. We already received the report from Alphabet after the bell; the parent company of Google beat on both the top and bottom lines. Later in the week, we’ll get reports from the likes of Amazon, Facebook and Microsoft. 

Today's Portfolio Highlights: 

Counterstrike: Shares of Intuitive Surgical (ISRG) moved lower during the Friday selloff despite this Zacks Rank #1 (Strong Buy) having just reported a strong quarter. This leader in robotic-assisted surgery announced a positive EPS surprise of 22% last week, underscoring the acceleration of its earnings momentum. According to Jeremy, the subsequent pullback was a gift. He added ISRG on Monday with a 10% allocation. 

In other news, the editor decided not to hold IDEXX Labs (IDXX) through its earnings report early next month. This leader in pet healthcare innovation has slipped all the way to a Zacks Rank #4 (Sell). Jeremy doesn’t want to take the risk right now, so he sold IDXX today and banked a 13.7% profit in a little over two months. Read the complete commentary for more on both of today’s moves. 

Surprise Trader: The auto industry is pretty hot these days, which should mean good things for OEM suppliers. For today’s promised pick, Dave dipped into that space with the addition of Allison Transmission (ALSN). This Zacks Rank #2 (Buy) manufactures fully automatic transmissions for commercial vehicles and U.S. military vehicles, as well as hybrid-propulsion systems for transit buses. The company has an excellent history of topping quarterly earnings estimates, including a beat of more than 37% last time. Now, ALSN has a positive Earnings ESP of 3.8% for the quarter being reported a week from today. Read the full write-up for more on this and future picks as earnings season heats up. 

Black Box Trader: The portfolio swapped out four positions this week. The stocks that were sold are:

• Ciena Corp (CIEN, +3.1%)
• HCA Healthcare (HCA, +0.5%)
• Flowers Foods (FLO)
• Supervalu Inc. (SVU) 

The new buys that replaced these names were:

• Archrock Inc. (AROC)
• Delek US Holdings (DK)
• Verifone Systems (PAY)
• Westrock Co. (WRK) 

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

Zacks Confidential: Of the market's myriad of fears right now, perhaps the biggest is a trade war with China. Kevin doesn’t believe such a thing will happen, but that doesn’t mean you shouldn’t prepare for one just in case. Therefore, in this week’s Zacks Confidential, he handed the keys over to John Blank, who knows all about making money on a global scale. Discover the odds of a trade war and get three top stock picks to play by clicking: What a China Trade War May Look Like? 

Insider Trader: "Wall Street started off the week nervously eying the 10-year treasury, which traded as high as 2.99% today before closing at 2.95%. 

"Does anyone really think it's going to continue to stay under 3% for much longer? 

"The Fed has already signaled it will continue raising interest rates this year. And commodity prices are spiking, which is sending a whiff of inflation through the economy. 

"There is no rational reason that 10-year rates should be below 3%. It is perfectly normal, and expected, for them to rise. 

"But normalization was always going to have bumps in the road. That's the reality. The Fed will attempt to normalize with as little volatility as possible, but this is a new era of rising rates. And there's a whole generation of investors who have never witnessed this kind of event." -- Tracey Ryniec 

Have a Good Evening, 
Jim Giaquinto

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