The odds of a quarter-point rate hike tomorrow remain at more than 95% on the eve of the announcement. But you can never really tell what the Fed will do and how the market will respond. With the first rate hike this year baked into the cake for weeks now, the market would likely slump if anything out of the ordinary occurred…including if the Fed decided to do nothing.
But that's not the only scenario where the Fed can trip things up. The market would not take kindly to a more hawkish tone that suggests an accelerated pace of hikes in 2017, nor would it like a surprise half-point increase. These scenarios may not be likely tomorrow, but the threat of volatility had several editors selling positions on Tuesday for big returns.
For example, Eric feels that the financial sector is due for a pullback, so today was a good day to sell two names for 20% profits each. Options Trader also mentioned the FOMC meeting as part of the reason to sell an option that brought a more than 50% return! Finally, the Fed was at play again in Zacks Counterstrike 's decision to sell a name for 10%+. Furthermore, ETF Investor replaced those names with new additions, while Large-Cap Trader , Stocks Under $10 , and Zacks Short List all added. Learn more about all this below.
But first, let's talk about the market. The major indices had another strong session on Tuesday with all eyes on the Dow as it attempts to move past 20,000! The index was up 0.58% today to 19,911.2. The S&P climbed 0.65% to 2271.7 and the NASDAQ advanced 0.95% to 5463.8.
Fed Inspires Big Returns
→ As other editors have said before, Eric feels that the financial sector is going to pause sooner rather than later. The space has been on fire since Donald Trump's election, but now we're on the eve of a Fed decision on rates. It's highly expected that they will raise rates by a quarter point tomorrow, so the market will react negatively to anything outside of that norm. The editor doesn't want to risk the ETF Investor 's profits in the financial sector, so he sold SPDR S&P Regional Banking ETF (KRE) today for a nice 27.3% return and got out of iShares US Broker-Dealers ETF (IAI) with a 20.2% profit. Learn more about the replacements of these names below:
→ Kevin still likes Illinois Tool Works (ITW), but the editor ended up selling his March 125.00 Call in Options Trader on Tuesday. The stock has slipped to a Zacks Rank #3 (Hold) from a Zacks Rank #1 (Strong Buy), while its industry has also slipped into the bottom 42% of the Zacks Industry Rank. Plus, the chart pattern for ITW suggests a pullback could be near. The editor thought it was prudent to take his profit in the name ahead of tomorrow's FOMC announcement, so he sold it and made an impressive 55% profit. Don't be surprised if Kevin decides to get back into ITW further down the road.
→ Even though everyone thinks they know what's going to happen, the Fed announcement tomorrow is still a bit of a risk. Jeremy wants some dry powder just in case there's volatility tomorrow. He sold Ubiquiti (UBNT) to lighten the portfolio's tech exposure. Plus, its Zacks Rank has slipped. The sell brought a gain of 10.8% to Zacks Counterstrike . Meanwhile, the editor does not like the price action of Brooks Automation (BRKS) right now, so he exited that as well for a return of 6.3%.
Today's Portfolio Highlights:
• In addition to selling two financial names for double-digit profits (mentioned above), the ETF Investor also replaced them with new buys. First up is PureFunds ISE Cyber Security ETF (HACK). The headlines today are full of concerns on Russian hacking in the presidential election, which shows that this is still a BIG issue. The portfolio already made a profit on this name earlier, and now Eric thinks it's primed to rise again. The best part is that HACK hasn't been bid up as much as the rest of the market, leaving it plenty of running room. Plus, several of the top ten holdings are Zacks Rank #2s (Buys) or better.
The other buy was Global Robotics and Automation Index ETF (ROBO), which gives the ETF Investor more exposure to industrials with a bit of technology on the side. The industrial automation and robotics industry is in the top 20% of the Zacks Industry Rank, and that could rise even further on the list in an environment of higher tariffs and higher wages. Eric also likes that it is well diversified around the world with just 43% of its total centered in the U.S. while Asia and Europe take up the rest. Learn more about both of today's swaps in the complete commentary.
• It's time for a new pick to the Large-Cap Trader . This week, John added CommScope Holdings (COMM), a premier network infrastructure provider that has also been a profitable position in RTA over the past month or so. It is part of the communication-infrastructure industry, which is in the top 27% of the Zacks Industry Rank. It also has a Zacks VGM Score of "A". COMM is the editor's second of four picks with a 2% allocation. He previously bought 11 names with 8% allocations each. Read the full write-up for more on this new addition.
• Stocks Under $10 added two stocks on Tuesday in an effort to "slow down the meteoric rises new additions are seeing" . One of the new buys was Asure Software (ASUR), a Zacks Rank #1 (Strong Buy) that's focused on workforce management solutions. The company has a great-looking chart and has beaten the Zacks Consensus Estimate in the last two quarters.
The other buy on Tuesday was Fairmount Santrol (FMSA). Technically, this company is a fracker, but specifically it is centered around the sand delivery to energy companies that is needed to pull oil and gas from the ground. In the past four quarters, it has beaten twice and met twice. It has a high earnings ESP of 25% for its next quarterly report. Read the full write-up for much more on these additions.
• Once again, the Zacks Short List swapped out three names in its weekly adjustment. The portfolio short covered PAYC, WMB and COP. It replaced these names by adding EOG Resources (EOG), Oceaneering International (OII) and Terex Corp. (TEX). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.
Have a Good Evening,
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