Great Day In The Market, Opportunities Abound

The markets closed sharply higher yesterday after a wild ride that saw the Dow down over -500 points at the open and up over +500 points at the close.

Since the highs on 1/26/18, the Dow has corrected as much as -10.66% while the S&P has pulled back by -9.74%. Although, by yesterday's close, the Dow and the S&P are now only down a more modest -6.40% and -6.19% respectively.

But it's been a while since we've seen a -10% correction. In fact, it's been about 2 years since we last had one. That's a long time. And the market was well overdue for one.

Make no mistake, these types of corrections are very healthy for the market. As mentioned before, it doesn't feel that great when you're going thru it. But these are the pullbacks that refresh and set the market up for its next leg higher.

Does this mean we are out of the woods? Too early to tell. But I definitely expect more volatility over the next several weeks. That means both up and down. But longer-term, I'm still extremely bullish and fully expect the market to make new all-time highs in the near offing.

In the meantime however, we still have the spending bill deadline on Thursday. With both parties dug in on their positions, I would not rule out yet another government shutdown. The last one had virtually no impact on the market. But given the recent swings, anything could set it off on another wild ride.

But the fundamental underpinnings of the market still look phenomenal. And they appear poised to only get better as the benefits of the tax cuts kick in.

And as a heads up, I believe small-cap stocks will soon take the leadership role in this market. Smaller companies are likely to see the biggest benefits with the corporate tax cuts. Many larger companies employed complex strategies to reduce their effective tax rate down to the mid-twenties even though the actual tax rate was 35%. But many smaller companies did not have the resources or the opportunities to do that and were stuck paying a much higher effective tax rate.

Now with the corporate tax rate at 21%, those companies will see a significant tax savings and they won't need to employ a team of lawyers and accountants to do it. The savings will be substantial and that money will likely be used to fund their growth.

So I'll definitely be looking for small-cap stocks. And you should consider that too.

Looking forward to seeing what the market has in store for us today. Up or down, the abundance of opportunities are exciting.

Best,

Kevin Matras

Executive Vice President, Zacks Investment Research

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