NASDAQ Drops Over 2% as Tech is Trounced Again

It looks like September’s sluggish shenanigans followed us into October after all, as tech again led the market lower on Monday to begin a week full of economic data.

Despite stiff losses last month and last week, stocks began October and the fourth quarter with a very respectable rally on Friday. Of course, most of the problems that plagued September are still with us.

We may have averted a government shutdown, but that debt ceiling debate is still hovering over us. Plus, there’s been no relief from rising inflation, supply chain issues, uncertainty over the Fed’s monetary policy or China troubles (e.g. Evergrande, Taiwan).

And the market’s always a bit on edge in the runup to the Government Employment Situation report. This Friday’s print could be especially meaningful since it might determine when the Fed begins tapering its asset purchases.

So given all these uncertainties, we had a rough start to the week today.

The NASDAQ, which snapped a five-day skid on Friday, went back in the red by plunging 2.14% (or about 311 points) to 14,255.48. It was another difficult day for tech with all of the FAANGs solidly lower, especially Facebook (NASDAQ:FB, -4.9%) amid an approximately six-hour outage and last night’s whistleblower story on “60 Minutes”.

Meanwhile, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) (GOOG) were each down 2% or more. Microsoft (NASDAQ:MSFT) also declined over 2%, while NVIDIA (NASDAQ:NVDA) dipped nearly 5%. The 10-year ticked a bit higher on Friday, but remained below 1.5% and well off of last week’s high around 1.56%.

Elsewhere, the S&P dropped 1.3% to 4300.46, while the Dow declined 0.94% (or about 323 points) to 34,002.92. Stocks are coming back from a rough week that saw the NASDAQ plunge over 3%, while the S&P and Dow were down 2.3% and 1.4%, respectively.

“The best thing that could happen to this market is a move to the 200-day ahead of the next earnings season,” said Dave Bartosiak in today’s Surprise Trader. “That would set us up for a nice rally with a healthy pullback in the rearview and the debt ceiling saga likely all cleared up. Get ready because opportunity is knocking.”

Today's Portfolio Highlights:

Technology Innovators: The portfolio swapped software positions on Monday as Bentley Systems (BSY) “has done nothing but go straight down” since being added less than a month ago and is “now past the point of no return”. Brian got rid of the stock today and replaced it with Progress Software (NASDAQ:PRGS), which is focused on developing and deploying mission-critical business applications. This Zacks Rank #2 (Buy) topped the Zacks Consensus Estimate in each of the past four quarters, including a beat of 42% in the most recent report. The company also has a very reasonable valuation for generating 34% topline growth in that blowout quarter. Perhaps most importantly at the moment, PRGS didn’t selloff like so many others in the past few weeks. This swap keeps the portfolio fully invested as Brian waits for the markets to bounce back. Read the full write-up for a lot more on today’s moves.

Zacks Short Sell List: As you can see in the scoreboard above, this portfolio is operating just as intended. It’s emotion-free approach was meant to outperform during volatile or falling markets. Therefore, on a day when the S&P plunged 1.3%, this service had the top four winners of the session among all ZU names. Those strong performances came from the short positions in Certara (CERT, +8.3%), Enphase Energy (NASDAQ:ENPH, +6.7%), Overstock.com (NASDAQ:OSTK, +6.6%) and StoneCo (STNE, +6.4%). By the way, the short in STNE is also a top performer over the past 30 days with a rise of 25.7%. This portfolio’s weekly update will be tomorrow, as usual.

Black Box Trader: This week's adjustment replaced more than half of the portfolio and cashed in a double-digit winner. The six stocks that were sold on Monday included:

• Mosaic (MOS, +18.8%)
• Olin Corp. (NYSE:OLN, +6.4%)
• LKQ Corp. (NASDAQ:LKQ)
• Textron (NYSE:TXT)
• The TJX Cos. (NYSE:TJX)
• Johnson Controls (NYSE:JCI)

The new buys that replaced these names were:

• Avantor (NYSE:AVTR)
• Jefferies Financial Group (NYSE:JEF)
• New York Community Bancorp (NYSE:NYCB)
• Pfizer (NYSE:PFE)
• Range Resources (NYSE:RRC)
• Tronox Holdings (TROX)

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

Options Trader: "But the report everybody is really waiting for is Friday’s always important Employment Situation report. After a miss in last month’s report, but a positive surprise the month before, everybody is wondering what the jobs market will show this time, especially with the extended unemployment benefits having expired in early September.

"Since many have attributed this year’s labor shortages, in part, on the extended unemployment benefits, it will be interesting to see if hiring picked up now that those are over.

"The fun stuff comes next week with Q3 earnings season coming into focus. Since stocks typically go up during earnings season, it’s easy to see why it can be such an exciting time in the market." -- Kevin Matras

Until Tuesday,
Jim Giaquinto

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