Investors Wary of the Weekend Again as Cases Rise

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Stocks limped into the weekend with losses of more than 2% in all the major indices on Friday, as it appears the economic recovery may not be as quick as hoped.

The market was handling rising coronavirus cases rather well for a while, but now states are beginning to pause their reopening plans.

Texas and Florida backtracked on Friday by re-closing bars as cases continue to rise. That’s a direct assault against all the optimism this market has showed throughout most of the past several weeks, which is why we just had our second 2%+ selloff of the week.

The Dow dropped 2.84% (or around 730 points) to 25,015.55, while the NASDAQ slipped 2.59% (or about 260 points) to 9757.22 and the S&P declined 2.42% to 3009.05.

For the week, the Dow slumped 3.3%, the S&P was off 2.9% and the NASDAQ dropped 1.9%. The market has now been negative in two of the past three weeks.

Also putting some pressure on the market was the results of the Fed’s stress test on the banks, which showed that some of them would get close to minimum capital levels under some of their scenarios for this pandemic. As a result, the Fed capped dividends and share buybacks.

The banks slumped sharply on Friday, including Wells Fargo (WFC, -7.42%), Bank of America (BAC, -6.35%), Citigroup (C, -5.88%) and JPMorgan (JPM, -5.48%).

We’re just a day removed from the financials leading the market higher on Thursday after regulators eased restrictions to free up capital.

So, we’re right back to watching the daily coronavirus numbers. The market isn’t plunging like it did in March thankfully, but investors are again wary of the weekend.

The great reopening is a learning process and we’re unlikely to be as shocked as before by this sickness. Let’s keep doing our part to fight the spread and hope for some good headlines next week as we move toward the Fourth of July weekend.

Today's Portfolio Highlights:

Large-Cap Trader: The portfolio ended the week by swapping out three names on Friday as the virus threatens to sink its teeth into this economy again. John sold all of the idled Alexion Pharmaceuticals (ALXN), along with “coronavirus victims” Hewlett Packard Enterprise (HPE) and Pilgrim's Pride (PPC). The new buys are:

• Repligen (RGEN) – a life sciences company
• Thor Industries (THO) – a recreational vehicles maker
• Dollar General (DG) – a major discount retailer

Each of these names should be better prepared to deal with the current environment. They are also all Zacks Rank #2s (Buys) from highly-ranked industries that saw big beats in their most recent quarterly reports. Read John’s complete commentary for specifics on each of these moves.

Healthcare Innovators: The recent Invitae/ArcherDX deal means big things for the genetic testing space, so Kevin got involved on Friday by adding Natera (NTRA). The company offers diagnostics with proprietary bioinformatics and molecular technology. One of its specialties is non-invasive prenatal testing, which is an area that its competitor Invitae is just beginning to move into. Therefore, the aforementioned deal doesn’t pose much of a threat for NTRA, since it has a head start on this innovative field. Revenues should cross over $350 million into early next year for NTRA, so the editor thinks this stock is poised to “bust out”. Learn a lot more about this new addition in the complete commentary.

Black Box Trader: The strong demand that Big Lots (BIG) saw in mid-April continued into its fiscal second quarter. In fact, the discount retailer said today that comparable sales through fiscal June increased “well ahead of expectations”. It’s expected to be up by a mid-to-high twenties percentage. The stock soared more than 27% on Friday, which easily gave this portfolio the top performer of the day among all ZU names. It nearly doubled the runner up… and on a day when the S&P plunged by more than 2.4%. 

Surprise Trader: The top movers list actually had TWO double-digit winners on an otherwise difficult day for the market. In addition to BIG (mentioned above), this portfolio saw Synnex (SNX) rise nearly 14.6% after reporting second quarter earnings and revenue that topped expectations. Dave added this business process services company on Monday.

Options Trader: "The growing concern over rising coronavirus cases weighed on stocks, overshadowing the better than expected consumer spending report which showed a sharp 8.2% increase vs. last month’s upwardly revised -12.6%.

"While 16 states are seeing an increase in cases due to the economic reopening and weeks-long protests, it’s also important to note that 34 states are not seeing an increase.

"Either way, the markets will be watching these developments closely. And if reality proves to be better than people’s fears, stocks should quickly resume their winning ways.

"Remember, stocks surged by more than 40% in 3 short months. There was bound to be a pullback one of these days. And now it’s here.

"But don’t get distracted from the bigger picture. The economic rebound is underway. And we’re seeing great pent-up economic demand being unleashed virtually everywhere.

"That’s why top analysts are calling for unprecedented GDP growth in Q3, more record growth in Q4, and the largest full year GDP growth in 2021 in 38 years." — Kevin Matras

Have a Great Weekend!
Jim Giaquinto

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