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Dow Soars Nearly 600 Points as Stocks Stage Big Comeback

The major indices began the week with a sharp rally that recovered Friday’s losses. The Dow was especially impressive by soaring nearly 600 points on Monday as the market calmed down over the weekend from the Fed’s modestly-hawkish announcement in its recent meeting.

When last we left you, investors were in a rather sour mood. The Dow just had its worst week of the year by plunging 3.6%. Friday's decline was a delayed reaction to the Fed announcement on Wednesday, in which the Committee raised its inflation projection and opened the possibility of two rate hikes in 2023. Quadruple witching added to the volatility.

But on second thought, maybe that selloff was a bit of an overreaction.

The Dow returned today and launched 1.76% (or nearly 587 points) to 33,876.97. Therefore, the index recovered all of Friday’s 533-point plunge and then some. Recovery names outperformed tech on Monday, which has been rare over the past few weeks as investors have been fretting over higher inflation.

The S&P also got back all of Friday’s losses with a jump of 1.4% to 4224.79. The NASDAQ rose 0.79% (or about 111 points) to 14141.48, which was most of its recent deficit. Both of these indices were at record highs at this time last Monday, but finished that week lower by 1.9% and 0.3%, respectively.

“What drove stocks higher? The same thing that’s been driving them higher all year – the improving economy and prospects for even bigger growth ahead,” said Kevin Matras in today’s Options Trader.

“With the country opening back up, and life starting to get back to something closer to normal, there’s huge pent-up demand out there that’s fueling growth.”

Will the market continue moving higher the rest of this week and set new all-time highs? Or do we need another significant pullback before stocks move higher? It’s tough to tell in the current environment. Let’s see what happens tomorrow.

Today's Portfolio Highlights:

Home Run Investor: One of the biggest success stories in all ZU services has been Cassava Sciences (SAVA), which is up more than 1,000% in less than six months for Stocks Under $10. There’s a lot of excitement over the company’s Alzheimer’s therapy. Now Brian wants some exposure to that space for this portfolio and found a name that "could do just as well if not better”. Athira Pharma (ATHA) is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and stop neurodegeneration. The company plunged 40% on Friday due to a weird story about its CEO altering images in her doctoral work. She’s been placed on leave. So does this scandal negate the company’s positive developments, which includes moving onto a Phase 2 trial? The editor says ‘NO!’ and capitalized on that plunge by adding ATHA to the portfolio today. He also sold Matson (MATX) and Echo Global (ECHO), which have not performed well as the price of oil increased. Read the full write-up for more on these moves. By the way, Smith & Wesson Brands (SWBI) gained 18.5% today, making this firearms company the best performer among all ZU names for the second straight session.

TAZR Trader: Eventually, Kevin believes that Shopify (SHOP) will surpass $1700, but he thinks this market is due for one more big dip before a July-August rally. Therefore, he trimmed some profits from this cloud-based, multi-channel commerce platform and banked a 31% return in a little over three months. The editor also trimmed the BigCommerce Holdings (BIGC) position for 8.1% in four months. Read the full write-up for more specifics.

Black Box Trader: More than half of the portfolio was replaced in this week's adjustment. The stocks that were sold today included:

• Cornerstone Building Brands (CNR, +3.3%)
• Alcoa (AA, +1.7%)
• Toll Brothers (TOL)
• Dick's Sporting Goods (DKS)
• Party City Holdco (PRTY)
• CNH Industrial N.V. (CNHI)

The new buys that filled these open spots were:

• American Axle & Manufacturing (AXL)
• Avis Budget Group (CAR)
• Build-A-Bear Workshop (BBW)
• Realogy Holdings (RLGY)
• The Chemours Company (CC)
• Tronox Holdings (TROX)

Read the Black Box Trader’s Guide to learn more about this computer-driven service.

Headline Trader: "I wouldn't be surprised if we saw a market pullback (5-10% pulldown) in the coming months, but there is just too much sidelined cash buying up the dips for a more substantial pulldown. As I have said in many prior commentaries, the equity markets remain the most attractive place to hold your capital.

"The credit markets are low-yielding, the retail investor revolution has ignited, and the persistent easy money policy from the Federal Reserve is going to continue to drive capital into the equity markets. Still, fund managers are waiting for a buying catalyst, and the Q2 earnings season, which initiates next month, could be the impetus we need."
-- Dan Laboe

Until Tomorrow,
Jim Giaquinto

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