Stocks Pull Back After Impressive YTD Performance, And Ahead Of Trade Talks

Plus New Zacks Strong Buys for Wednesday, October 2 Profit from the Pros Stocks Pull Back After Impressive YTD Performance, And Ahead Of Trade Talks Stocks opened higher, but then spent the rest of the day heading lower. After closing out a solid month, and the best first-three quarters in years, the Dow and the S&P started off Q4 yesterday with their worst day in six weeks. Stocks turned south after yesterday morning's ISM Manufacturing Index came out showing a lighter than expected 47.8 vs. last month's 49.1 and views for 50.0. The report noted that export orders contracted, and have for the last three months in a row, and that was weighing on the numbers. New orders and backlogs were weaker as well. Slowing global trade was largely cited as the culprit. The PMI Manufacturing Index was better at 51.1 vs. last month's 50.3 and estimates for 51.0. It also showed new orders rising, albeit due to domestic markets. But it confirmed that exports were falling. And those two reports turned the early green numbers to red. Construction Spending was up 0.1% vs. last month's 0.0%. But it was under the consensus for 0.3%. Retail sales via the Redbook report was strong however, showing a y/y pace of 5.8%, which was even higher than last month's robust 5.3%. But it was not enough to offset the other reports listed above. On a positive note, the manufacturing numbers underscore the need for an additional rate cut when the FOMC meets again in late October. And this increases the chances that we'll get one. In the meantime, I wouldn't worry too much about yesterday's pullback. As I've outlined before, there were three key layers of support for the S&P: one at 2,938.84 (which was a gap left on the chart from September 4th), and which was filled yesterday; then 2,914.39 (a gap from September 3rd); and then 2,890.03 (a gap left on the chart from August 28th). Those other two areas don't have to be hit. But if they were, I wouldn't be surprised. Nor concerned. And I'd be a buyer on those dips. But I'd equally unsurprised if we skipped the dips, and just went higher instead. The main things traders will be focusing on in the coming few weeks is earnings, jobs (Employment Report comes out on Friday), and of course, the U.S.-China trade talks which resumes on October 10th. If we see some additional volatility until then (specifically ahead of the trade talks), so be it. (Did I mention we just came off of the best first-three quarters in years?) There was bound to be some profit taking and position squaring after such a great run, and ahead of such an important event. But I would look at any weakness as transitory, and as an opportunity, because it looks like there's a lot more upside to go. So pay attention to the big picture, and don't get spooked by normal market action. 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