Stocks Stay Positive in February Despite Rising Rates

Tech recovered some of its recent losses on Friday, but the major indices still dropped for the week as the market just can’t relax while rates are on the rise. Nevertheless, stocks were still higher for February.

This session looked a little like the good old days with the NASDAQ outperforming its counterparts. The index, which plunged 3.5% on Thursday, bounced back a bit and rose 0.56% (or nearly 73 points) to 13,192.35. However, its weekly loss of approximately 5% shows just how much tech has been under pressure.

The Dow dropped 1.5% (or about 470 points) to 30,932.37, but this index had the “best” weekly performance by only dipping 1.8%. The S&P was off 0.48% to 3811.15 and slipped 2.5% for the five days.

The 10-year Treasury yield closed below 1.5% on Friday, after momentarily climbing to 1.6% on Thursday for its highest reading in a year. We even got some good news on inflation from the personal consumption expenditures price index. However, investors just can’t shake their anxiety right now, even after dovish comments from Fed Chair Jerome Powell twice this week.

Everything was moving along just fine before all these concerns started. Case in point, the major indices still finished February in the green! The Dow was up 3.2%, while the S&P rose 2.6% and even the NASDAQ eked out a 0.9% increase. So despite all the recent hyperventilating, this month still turned out better than January.

Unfortunately, earnings season has been a bit overshadowed in all this nervousness. And it shouldn’t be! Because fourth-quarter earnings are on track to grow 3.6% when expectations were for an 11% decline before we got started. As usual, our Director of Research Sheraz Mian breaks down the season in his most recent article “Market Shrugs Off Strong Retail Earnings”.

As we put February to bed, an FDA advisory panel recommended Johnson & Johnson’s (JNJ) single-dose covid vaccine, putting it a step closer to becoming the third treatment to end this pandemic. And it looks like the $1.9 trillion stimulus deal is about to pass the House.

See you in March!

Today's Portfolio Highlights:

Large-Cap Trader: We’re moving into a new month, so it’s time for John to make some changes to the portfolio. On Friday, he sold FedEx (NYSE:FDX) for a 6% return, ASML N.V. (ASML) for 5.8% and Target (NYSE:TGT) for 4.8%. The first two names had been in the portfolio for just under a month, while the third was involved for nearly two months. The new buys are:

• Quorvo (QRVO) – Zacks Rank #2 (Buy)
• Louisiana-Pacific (NYSE:LPX) – Zacks Rank #1 (Strong Buy)
• McKesson (NYSE:MCK) – Zacks Rank #2 (Buy)

These names are major players in the semiconductor, building products and medical products spaces, respectively, which the editor believes should do well in the current environment. In addition to their high Zacks Ranks, these new buys are also part of strong industries, have top Zacks Style Scores for Growth, and are beating quarterly earnings estimates by double-digits. Read the full write-up for a lot more on today’s moves.

ETF Investor: The tech rebound today is giving Neena a chance to reduce the portfolio's exposure to mega-cap stocks. Therefore, the editor sold Vanguard Mega Cap Growth ETF (MGK) for a 26.5% return and then added S&P SmallCap 600 Pure Value ETF (RZV). The new buy invests in about 160 small- and micro-cap companies with the strongest value characteristics. It’s largest allocations include financials, industrials and consumer discretionary, which are spaces that will benefit most from the emerging dynamic of higher rates and faster economic growth. It has an expense ratio of 35 basis points and more than $207 million in assets. Neena suggests using a limit order. Read the full write-up for more on RZV.

Surprise Trader: With the global shift turning away from services and towards goods as the pandemic loses its grip, Dave wants some exposure to the transportation – shipping industry. Therefore, he added Global Ship Lease (NYSE:GSL) on Friday, which has a positive Earnings ESP heading into its report after the bell on Thursday, March 4. The company has beaten the Zacks Consensus Estimate for three straight quarters now, topping by nearly 19% last time. GSL was added today with a 12.5% allocation, while the editor also sold the stalled Ternium (TX) position for a 5.4% return in two weeks. Read the full write-up for more.

Have a Great Weekend!
Jim Giaquinto