Dow Sheds Nearly 7% as Pullback Finally Arrives

SPECIAL ALERT: Remember, the June episode of the Zacks Ultimate Strategy Session is now available for viewing! Don’t miss your chance to hear:

• Sheraz Mian and Kevin Cook Agree to Disagree on whether the market has discounted the worst of the earnings recession even though we haven’t seen the trough yet

• Kevin Matras answers questions covering riots and the impact on the stock market, why some are calling this a bull market while others call it a bear market rally and more in Zacks Mailbag

• Sheraz and Brian Bolan choose one portfolio to give feedback for improvement

• Market conditions from both fundamental and technical views

• The full list of top-performing stocks over the past 30 days

• New stocks added to the ZU portfolio

• And much more

Simply log on to Zacks.com and view the June episode here. And please let us know what you think of these monthly episodes. Email all feedback to mailbag@zacks.com.


Anyone waiting for a pullback certainly got their wish on Thursday, as stocks had a March-like selloff after several weeks of optimism and upward momentum.

As any of the editors will tell you, such a snapback has been long overdue. Stocks surged well over 40% from late-March and the NASDAQ was back to reaching new highs on a daily basis.

Even the S&P (NYSE:SPY) momentarily saw green for the year on Monday, while the Dow led the market higher on the backs of beaten-down spaces like airlines, financials, casinos, cruise companies and retailers.

Something had to give… and today it did.

Rising coronavirus cases and Chair Powell’s downbeat outlook yesterday provided the one-two punch to a market that might have been a bit too optimistic.

The Dow plunged 6.9% (or about 1861 points) on Thursday to 25,128.17. That's pretty much the same amount it gained all of last week! And don’t forget that the index lost approximately 2% in the previous two sessions as well.

It makes perfect sense, though. The Dow had been soaring of late as optimism over the reopening economy grew and money moved back into names that were shredded during the shutdown.

The sentiment simply shifted back after rising cases and Powell’s comments suggested that the recovery may not be as easy as hoped.

The S&P plunged 5.89% to 3002.10, while the NASDAQ declined 5.27% (or about 527 points) to 9492.73.

Don’t worry if you had a flashback to March today. You weren’t alone.

"Outside of the potential for the virus coming back in force, I think this is all healthy," said Jeremy in Counterstrike. "The market was way overdone and was due for a pullback. I think the one-day move is a little absurd, but this is what the algos do. They are programmed to view the market as efficiently as possible, so if the news calls for a sell to the 200-day, they waste no time."

Usually on Thursday we’d be talking about jobless claims, but the selloff took all the attention. Nevertheless, the economy lost another 1.54 million jobs last week, which beat expectations and continues the data’s downward trajectory.

So was this a one-day plunge to reset the market after a period of overconfidence? Or is this a change in sentiment that’s previewing even more selling to come?

It’s all about the recovery. So let’s wait and see what the headlines are tomorrow…

Today's Portfolio Highlights:

Counterstrike: This pullback has been a long time coming, and Jeremy thinks the selling could last for a while. Therefore, he pulled profits from two positions on Thursday. Shares of Zynex (NASDAQ:ZYXI) bucked all this downward pressure today and actually moved forward on news of its addition to the S&P Smallcap 600. The editor sold into this strength and got back 35.7% from this medical devices company in just a little over one month. Meanwhile, The Trade Desk (NASDAQ:TTD) has jumped in the two weeks since being added, so the portfolio sold half of the position for an 18.4% profit.

Surprise Trader: Part of the so-called ‘new normal’ may very well be more people driving around rather than taking cluttered public transportation. If so, then used car superstore CarMax (NYSE:KMX) may be a big beneficiary. The company reports before the bell on Friday, June 19… and it currently has an extremely healthy Earnings ESP of 304.31%! That’s what Dave likes to see, so he added KMX on Thursday with a 12.5% allocation. Read the complete commentary for more.

Home Run Investor: Not every biotech play is in the “super hot and then super cold" COVID space. Case in point, Brian added Denali Therapeutics (NASDAQ:DNLI) on Thursday. This Zacks Rank #2 (Buy) is focused on therapies for neurodegenerative diseases like Alzheimer’s and Parkinson’s. The name adds some diversity to the portfolio and gets the service back to fully invested with 15 names. Learn a lot more about DNLI in the full write-up.

Insider Trader: Now that we’re finally getting the expected pullback from the reopening rally, Tracey decided this was a good time to lock in some gains. She sold parts of five names on Thursday and all brought positive returns, including three double-digit winners. The portfolio sold 50% each of these positions:

• KeyCorp (NYSE:KEY, +17.3% since 4-20)
• Union Pacific (NYSE:UNP, +13.2% since 4-7)
• Ryder (R, +10.6% since 5-7)
• Royal Caribbean (NYSE:RCL, +9.8% since 5-29)
• Tutor Perini (NYSE:TPC) (TPC, +4.4% since 5-29)

Now, the editor will wait and see if the “bears will exhaust themselves”. Plus, it frees up money for her to add new positions moving forward.

Technology Innovators: Shares of GreenSky (GSKY) were down sharply on Thursday along with the rest of the market. Brian decided to sell this provider of a proprietary technology infrastructure platform on Thursday while he could still ring up a 20.9% return. The stock was added in late April. The editor replaced GSKY by adding Veeco Instruments (NASDAQ:VECO), a Zacks Rank #1 (Strong Buy) manufacturer of thin film process equipment that are used to make electronic devices. The company has beaten the Zacks Consensus Estimate in each of the last four quarters and has a good valuation. Read the full write-up for more on today’s moves.

Until Tomorrow,
Jim Giaquinto