Wall Street Brushes Off Trade War Fears: Top 5 Gainers

Major bourses made a remarkable comeback on Apr 4, with the Dow Jones gaining more than 700 points from trough-to-peak. Initially, the bourses had plunged below key technical levels after China retaliated with threats to impose tariffs on a number of American goods.

But stocks rebounded after investors gauged that the tariffs threats are merely negotiating tactics and both the sides won’t risk a full-blown trade war. After all, trade conflicts dent corporate profits and impede economic expansion. President Trump also downplayed fears over tariffs announced by both China and the United States.

As trade war worries dissipate and the broader market moves north, investing in stocks making the most of the recovery seems judicious.

Wall Street’s Massive Recovery

The Dow Jones rebounded from 510 points, or 2.1% plunge, to finish the session up about 230 points, or 1% on Apr 4. The blue-chip index, thus, registered its best single-session comeback since Feb 6, when blue chips had slipped 2.33% to end at 2.33%.

The S&P 500 and the tech-heavy Nasdaq staged their biggest intraday turnarounds since Feb 9, when the S&P tumbled 1.9% but ended with a gain of 1.5% and the Nasdaq logged a gain of 1.4% after being down 2.2% on that day.

On Apr 4, the S&P gained 30 points, or 1.2%, while the Nasdaq rose 101 points, or 1.5%, eventually erasing steep opening losses. With such gains, the S&P closed above its 200-day moving average for the second-straight day, indicating encouraging long-term trends. The S&P, in particular, gained in back-to-back sessions for the first time since Mar 9. The Nasdaq, in the meanwhile, ended in the positive territory for the year.

What Led to the Initial Losses?

Concerns about a potential trade war between the United States and China had unnerved investors. China’s Ministry of Commerce plans to impose tariffs on 106 U.S. products, including soybeans and airplanes, affecting $50 billion worth of goods.

American soybean manufacturers are likely to face steep losses, as they export almost $13 billion out of the $20 billion yearly agricultural sales to China. Investors are also selling shares of airline manufacturer The Boeing Company BA and heavy equipment maker Caterpillar Inc. CAT. These behemoths have huge business operations in China, thus, their revenues and profits are vulnerable to trade disputes.

China retaliated after the Trump administration levied duties on 1,300 Chinese exports, worth $50 billion. The list includes video monitors, electromagnets used in MRI machines, aerospace products, and machinery. U.S. levied tariffs on China to punish the second-largest economy for theft of trade secrets including software and patents.

Trade War Worries Lessen

But, investors soon realized that the countries do not want a full-blown trade war despite the tit-for-tat tariff threats. After all, a trade war is a big worry for corporate America as its profits will be hurt if trade restrictions are put. It may also deal a heavy blow to economies, resulting in widespread unemployment.

Lest we forget, market pundits expect Q1 earnings results to be quite impressive, while Trump’s economy is in good shape with the jobless rate near a 17-year low. Total earnings for the S&P companies are estimated to improve 16% from the same period last year on 7.4% higher revenues, the highest quarterly earnings growth pace in seven years. Such an uptick will follow 13.5% earnings growth on 8.5% revenue improvement last quarter (read more: Looking Ahead to the Q1 Earnings Season). 

The White House also played down the notion of a trade war. Trump’s chief economic advisor, Larry Kudlow told reporters that he is willing to resolve the trade disputes with minimum hassle.

And when it comes to Trump, we all know that his actions are not as tough as his rhetoric. How can we forget that he was supposed to impose hefty tariffs on foreign steel and aluminum? But, he chose to give exemptions to countries like Mexico, Canada, the European Union, South Korea, Australia, Brazil and Argentina after his top allies threatened retaliation.

Top 5 Winners

Not only did major indices end up more than 1% in the last trading session, but these also have the scope to scale higher on reduced trade war fears. We have, thus, selected five stocks that can make the most of the encouraging trend. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Tandem Diabetes Care, Inc. TNDM designs, develops, and commercializes various products for people with insulin-dependent diabetes in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 73.2% in the last 60 days. The stock’s expected growth rate for the current quarter and year are 92% and 88.9%, respectively. The company yielded a return of 4.8% on Apr 4.

Addus HomeCare Corporation ADUS provides personal care services to elderly, chronically ill, disabled persons, and individuals who are at risk of hospitalization or institutionalization in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 8.9% in the last 60 days. The stock’s expected growth rate for the current quarter and year are 17.7% and 26.2%, respectively. The company yielded a return of 2.3% on Apr 4.

Tailored Brands, Inc. TLRD operates as a specialty apparel retailer in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 10.4% in the last 60 days. The stock’s expected growth rate for the current quarter and year are 74.1% and 11.4%, respectively. The company returned 4.4% on Apr 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tellurian Inc. TELL develop, own, and operate a natural gas business and to deliver natural gas to customers. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 11.4% in the last 60 days. The stock’s projected growth rate for the current quarter and year are 78.6% and 62.2%, respectively. The company has yielded a return of 4.3% on Apr 4.

Johnson & Johnson JNJ develops, manufactures, and sells various products in the health care field. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings climbed 0.4% in the last 60 days. The stock’s estimated growth rate for the current quarter and year are 9.8% and 11.2%, respectively. The company has yielded a return of 1.6% on Apr 4.

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Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Tandem Diabetes Care, Inc. (TNDM) : Free Stock Analysis Report
 
Addus HomeCare Corporation (ADUS) : Free Stock Analysis Report
 
Tailored Brands, Inc. (TLRD) : Free Stock Analysis Report
 
Magellan Petroleum Corporation (TELL) : Free Stock Analysis Report
 
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