Wall Street just completed a disappointing August, which historically remains weak in stock market performance. However, this August dented investors’ confidence a little bit more with heightened trade conflict between United States and China, global economic slowdown and various geopolitical unrests.
However, despite the presence of severe volatility, a few stocks, within the broad-market S&P 500 Index, climbed in August.
Major Indexes Plummet in August
All three major stock indexes ---- the S&P 500, the Dow and the Nasdaq Composite ---- finished in negative territory in August. So far in 2019, August was the second month after May, when all three major stock indexes closed in the red.
Notably, the S&P 500, the Dow and the Nasdaq Composite lost 1.8%, 1.7% and 2.6% in August, marking the worst-ever performance in August since 2015 for all the three indexes. These indexes posted four successive weekly losses starting from the last week of July to the third week of August. It was only in the fourth week of August that these indexes rallied on hopes of renewed trade talks between the United States and China.
Volatility Mars Stock Performance
After two consecutive months of bull run, volatility resurfaced on Wall Street from the beginning of August owing to a less-than-expected dovish monetary stance adopted by the Fed and President Trump’s tweet expressing desire to impose a 10% tariff on a new set of Chinese goods worth $300 billion.
Moreover, China started manipulating its currency by setting its mid-point to below 7 a U.S. dollar, a key psychological barrier, for the first time in more than a decade. Meanwhile, Eurozone continued to suffer from manufacturing wooed and several major emerging market central banks reduced the benchmark interest rate to steady their economies in order to combat a global economic slowdown.
Meanwhile, the tariff war between the two largest trading nations of the world heightened on Aug 23 after China announced that it will impose 5% to 10% tariff on another $75 billion of U.S. goods in two tranches, on Sep 1 and Dec 15. Additionally, a 25% tariff on U.S. auto products and auto parts will be imposed effective Dec 15.
In retaliation, President Donald Trump decided to raise tariff to 30% from the existing 25% on $250 billion Chinese goods. Moreover, he also raised the tariff from 10% to 15%, which is to be levied on an additional $300 billion of Chinese exports effective Sep 1.
Additionally, several geopolitical crises such as the possibility of a no-deal Brexit in Britain, political turmoil in Italy, political unrest for democracy in Hong Kong and the ongoing oil conflict between the United States and China also jeopardized investors’ confidence.
Treasury Yield Curve Inversion
All these negatives resulted in inversion of yields on 2-year and 10-year U.S. Treasury Notes on Aug 14, for the first time since December 2005. Thereafter, on Aug 28, yield on the 10-year Note plummeted below the psychological barrier of 1.5% to 1.45% and below the 2-year Note’s yield of 1.5%. The spread registered its lowest level since 2007. Similarly, the yield on 30-year U.S. Treasury Note fell below its psychological barrier of 2% to as low as 1.907%.
Meanwhile, the yield on short-term 3-month Treasury Bill stayed at 1.992%, reflecting inversion with the yields of mid-term 2-year, benchmark 10-year and long-term 30-year Notes. Several economists and financial experts consider this bond market phenomenon as a clear indication of an impending recession.
5 S&P 500 Stocks Surge in August
The recent concerns about a U.S.-China trade deal and consequently global economic slowdown have not stalled the entire market. We have been able to narrow down our search to five S&P 500 stocks, which have popped in the past month and still have upside left. All five stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
TransDigm Group Inc. TDG is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. It operates in three segments: Power & Control, Airframe and Non-aviation.
The company has expected earnings growth of 1% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 5.8% over the last 30 days. TransDigm Group has jumped 12.3% in the past month.
Keysight Technologies Inc. KEYS provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor and electronic industries in the Americas and the Asia Pacific.
The company has expected earnings growth of 38.9% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 6.4% over the last 30 days. Keysight Technologies has climbed 8.1% in the past month.
Bristol-Myers Squibb Co. BMY discovers, develops, licenses, manufactures, markets, distributes and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular and fibrotic diseases.
The company has expected earnings growth of 7.5% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 0.5% over the last 30 days. Bristol-Myers Squibb has soared 6.3% in the past month.
NRG Energy Inc. NRG is the leading integrated power company in the United States, built on the strength of their diverse competitive electric generation portfolio and leading retail electricity platform. It is involved in the producing, selling and delivering electricity and related products and services residential, industrial and commercial consumers.
The company has expected earnings growth of 67.6% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 4.9% over the last 30 days. NRG Energy has surged 6% in the past month.
Arconic Inc. ARNC is a global leader in multi-material, precision engineered products and solutions for a variety of industries. It operates in three segments: Engineered Products and Solutions, Global Rolled Products, and Transportation and Construction Solutions.
The company has expected earnings growth of 50% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 8.5% over the last 30 days. Arconic has surged 6% in the past month.
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