Indexes Post First 4-Week Winning Run Since August: 5 Picks

Wall Street has recovered ground lost in 2018 owing to extreme market volatility. All three major indexes — the Dow, S&P 500 and Nasdaq Composite — finished in the red in 2018 on account of uncertainty over the Fed’s future monetary stance, conflicting news related to trade war between the United States and China, and concerns of a global economic slowdown.

However, U.S. stock markets have commenced 2019 on a brighter note. Positive developments on trade war front, Fed’s dovish monetary stance and strong economic data are likely to boost investor sentiment in the near-term resulting in further consolidation of the indexes. Consequently, it will be prudent to invest in stocks from these three indexes with a favorable Zacks Rank.

Major Indexes Northbound

On Jan 18, the Dow closed at 24,706.35, gaining 336.25 points or 1.4%. Meanwhile, the S&P 500 and Nasdaq Composite ended at 2,670.71 and 7,157.23, rising 1.3% and 1%, respectively. All three indexes continued their winning run for four consecutive days.

Moreover, major indexes also recorded weekly gains for four-straight weeks for the first time since August 2018. Additionally, the Dow, S&P 500 and Nasdaq Composite are up 5.9%, 6.5% and 7.9%, respectively, year to date. All three indexes are currently out of correction territory.  

Positive Developments on Trade War Front

On Jan 18, Bloomberg reported that China has offered to ramp up imports from the United State in the next six years. Total value of the imports will be $1 trillion which will bring down the United States’ massive trade deficit with China to zero in 2024. Some officials who are engaged in the ensuing United States – China trade deal have revealed this information. Notably, the United States had a trade deficit of $323 billion with China in 2018.

On Jan 16, The Wall Street Journal reported that the U.S. government is contemplating a proposal regarding lifting of some tariffs imposed on China. This will act as an incentive to the Asian economic giant to make deeper concessions to the United States. However, a Treasury Department spokesperson later denied the news.

Powell Signals Dovish Monetary Stance by the Fed

On Jan 4, Fed Chairman Jerome Powell at the American Economic Association meeting in Atlanta said that the central bank will be closely monitoring the economy’s performance in 2019 before taking any rate hike decisions. The central bank will adjust interest rate if it witnesses any sort of unexpected fluctuations in the U.S. economy.

The Fed will also reconsider its balance sheet reduction policy in order to keep interest rate market friendly. Notably, uncertainly related to the Fed’s monetary stance in 2019 resulted into extreme market volatility in the last three months.  

Strong Manufacturing Output

On Jan 18, Federal Reserve reported that the U.S. industrial production increased 0.3% in December 2018, higher than the consensus estimate of 0.2%. Manufacturing production grew 1.1% in December, its biggest gain since February 2018. Capacity utilization for the manufacturing sector increased to 76.5% in December from 75.8% in November.

Our Top Picks

At this stage, it will be a prudent move to invest in stocks from these three indexes. Each of our picks has a Zacks Rank #1 (Strong Buy) and provided strong future growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past one year.

AeroVironment Inc. AVAV: The company recorded positive earnings surprise of 6.8% in the last four quarters. The company has expected earnings growth of 37% for current year. The Zacks Consensus Estimate for the current year has improved by 8.8% over the last 60 days.

The Boeing Co. BA: The company recorded positive earnings surprise of 28% in the last four quarters. The company has expected earnings growth of 20.9% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days.

L3 Technologies Inc. LLL: The company recorded positive earnings surprise of 6.8% in the last four quarters. The company has expected earnings growth of 11.7% for current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days.

Keysight Technologies Inc. KEYS: The company recorded positive earnings surprise of 6.8% in the last four quarters. The company has expected earnings growth of 16.4% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 60 days.

SPS Commerce Inc. SPSC: The company recorded positive earnings surprise of 6.8% in the last four quarters. The company has expected earnings growth of 10.3% for current year. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 60 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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