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The S&P 500 logged its highest one-day gain in percentage terms since Mar 11 on Tuesday. Technology and financial stocks propelled the S&P 500 higher as all 10 of the index’s sectors ended the day in the green. A strong comeback for sectors which have suffered losses through most of the year was the most notable event of the day.
Rising fuel prices, strong economic data and a change in the manner in which investors perceive a possible rate hike seem to be fuelling these gains. This implies that concerns that were weighing on investors for quite some time now have dissipated. Picking technology and financial stocks from the S&P 500 looks like a prudent move at this time.
Rate Hike Fears Fall, Financials Set to Gain
Markets were gripped with fear following the release of Federal Open Market Committee’s (FOMC) minutes on May 18. But last Friday, a change in perception among investors was clearly perceptible as benchmarks ended higher despite speculations that a Fed rate hike in June was most likely. This is because a data dependent Fed has shown keenness in making such a move due to encouraging economic data, something which investors have begun to latch on.
Tuesday marked the release of record new home sales data, which increased by 1.6% from March to 619,000 in April, settling at its highest level since Jan 2008. This report came on the heels of a number of positive economic indicators. This led investors to react positively with tech and financial stocks leading the markets to close in the green.
Financials are a sector which will immediately benefit from a rate hike. The Financial Select Sector SPDR (XLF) and the Financial Services Select Sector SPDR (XLFS) have lost 1.2% and 2.5% year to date, respectively. But, on Tuesday, XLFS and XLF increased 1.7% and 1.5%, respectively. Over the last five days the XLF and XLFS have gained 2.9% and 3.4%, respectively.
Tech Stocks Stage Strong Rebound
Meanwhile, the Technology Select Sector SPDR (XLK) increased 1.9% and was the biggest advancer among the S&P 500 sectors during Tuesday’s session. XLK has gained 1.6% up to now in May after a spate of poor earnings numbers from big tech names dragged down the sector last month. Under par results from Alphabet Inc. (GOOGL - Free Report) , Microsoft Corporation (MSFT - Free Report) and Apple Inc. (AAPL - Free Report) were among the major disappointments last month on the tech stock front.
However, as the earnings season draws to a close, it seems the tech sector’s results have outperformed the broader index. Currently, we have Q1 results from 96.3% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are down 5.4% while revenues have gained a slender 0.8%, with 67.3% beating EPS estimates and 56.4% topping revenue estimates.
Excluding the Apple drag, total earnings for the rest of the sector would have been up 0.8%. In contrast, 480 S&P 500 members that have reported results with estimates for the still-to-come 20 members, total Q1 earnings are currently expected to be down 6.6% from the same period last year on 1.1% lower revenues.
Additionally, revenues for Facebook, Inc. increased 52% in the first quarter and its shares have gained more than 6% over the last month. Shares of cloud computing company salesforce.com, inc. (CRM - Free Report) have gained 8.2% over May up to now after experiencing double-digit revenue growth across all its divisions. A recovery from Apple has also boosted the sector’s odds of success.
Shares of iPhone maker had declined after it reported its first quarterly decline in revenues in nearly 13 years. However, the company has made a recovery after Warren Buffett's Berkshire Hathaway Inc. (BRK.B - Free Report) reported in a regulatory filing that it has acquired 9.8 million shares or a $1 billion stake in Apple during the first quarter. The iPhone maker has gained nearly 8% since May 12. Together, these factors have ensured a gain of 3.8% for XLK during May so far.
Our Choices
Investors seem to have shrugged off fears of a possible rate hike in June and are choosing to focus on the strong economic data which are fuelling such a move. As a result, sectors which were out of favor till recently are making a comeback.
This is why it makes perfect sense to add stocks from the financial and tech sectors of the S&P 500 to your portfolio. Selecting winning stocks, however, may be a difficult proposition.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Qorvo, Inc. (QRVO - Free Report) is a leading provider of core technologies and radio frequency (RF) solutions for mobile, infrastructure and aerospace/defense applications.
Qorvo has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 15.2% for the current year. Its earnings estimate for the current year has improved by 4.1% over the last 30 days.
Applied Materials, Inc. (AMAT - Free Report) is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.
Applied Materials has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 27.3% for the current year. Its earnings estimate for the current year has improved by 15.3% over the last 30 days.
VeriSign, Inc. (VRSN - Free Report) provides Internet infrastructure services that include domain name registry services and infrastructure assurance services.
VeriSign has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 10.5% for the current year. Its earnings estimate for the current year has improved by more than 3.6% over the last 30 days.
Aflac Incorporated (AFL - Free Report) through its subsidiary – American Family Life Assurance Company of Columbus – provides supplemental health and life insurance.
Aflac has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 8.5% for the current year. Its earnings estimate for the current year has improved by more than 2.2% over the last 30 days.
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4 Stocks to Buy as S&P 500 Hits 2-Month High
The S&P 500 logged its highest one-day gain in percentage terms since Mar 11 on Tuesday. Technology and financial stocks propelled the S&P 500 higher as all 10 of the index’s sectors ended the day in the green. A strong comeback for sectors which have suffered losses through most of the year was the most notable event of the day.
Rising fuel prices, strong economic data and a change in the manner in which investors perceive a possible rate hike seem to be fuelling these gains. This implies that concerns that were weighing on investors for quite some time now have dissipated. Picking technology and financial stocks from the S&P 500 looks like a prudent move at this time.
Rate Hike Fears Fall, Financials Set to Gain
Markets were gripped with fear following the release of Federal Open Market Committee’s (FOMC) minutes on May 18. But last Friday, a change in perception among investors was clearly perceptible as benchmarks ended higher despite speculations that a Fed rate hike in June was most likely. This is because a data dependent Fed has shown keenness in making such a move due to encouraging economic data, something which investors have begun to latch on.
Tuesday marked the release of record new home sales data, which increased by 1.6% from March to 619,000 in April, settling at its highest level since Jan 2008. This report came on the heels of a number of positive economic indicators. This led investors to react positively with tech and financial stocks leading the markets to close in the green.
Financials are a sector which will immediately benefit from a rate hike. The Financial Select Sector SPDR (XLF) and the Financial Services Select Sector SPDR (XLFS) have lost 1.2% and 2.5% year to date, respectively. But, on Tuesday, XLFS and XLF increased 1.7% and 1.5%, respectively. Over the last five days the XLF and XLFS have gained 2.9% and 3.4%, respectively.
Tech Stocks Stage Strong Rebound
Meanwhile, the Technology Select Sector SPDR (XLK) increased 1.9% and was the biggest advancer among the S&P 500 sectors during Tuesday’s session. XLK has gained 1.6% up to now in May after a spate of poor earnings numbers from big tech names dragged down the sector last month. Under par results from Alphabet Inc. (GOOGL - Free Report) , Microsoft Corporation (MSFT - Free Report) and Apple Inc. (AAPL - Free Report) were among the major disappointments last month on the tech stock front.
However, as the earnings season draws to a close, it seems the tech sector’s results have outperformed the broader index. Currently, we have Q1 results from 96.3% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are down 5.4% while revenues have gained a slender 0.8%, with 67.3% beating EPS estimates and 56.4% topping revenue estimates.
Excluding the Apple drag, total earnings for the rest of the sector would have been up 0.8%. In contrast, 480 S&P 500 members that have reported results with estimates for the still-to-come 20 members, total Q1 earnings are currently expected to be down 6.6% from the same period last year on 1.1% lower revenues.
Additionally, revenues for Facebook, Inc. increased 52% in the first quarter and its shares have gained more than 6% over the last month. Shares of cloud computing company salesforce.com, inc. (CRM - Free Report) have gained 8.2% over May up to now after experiencing double-digit revenue growth across all its divisions. A recovery from Apple has also boosted the sector’s odds of success.
Shares of iPhone maker had declined after it reported its first quarterly decline in revenues in nearly 13 years. However, the company has made a recovery after Warren Buffett's Berkshire Hathaway Inc. (BRK.B - Free Report) reported in a regulatory filing that it has acquired 9.8 million shares or a $1 billion stake in Apple during the first quarter. The iPhone maker has gained nearly 8% since May 12. Together, these factors have ensured a gain of 3.8% for XLK during May so far.
Our Choices
Investors seem to have shrugged off fears of a possible rate hike in June and are choosing to focus on the strong economic data which are fuelling such a move. As a result, sectors which were out of favor till recently are making a comeback.
This is why it makes perfect sense to add stocks from the financial and tech sectors of the S&P 500 to your portfolio. Selecting winning stocks, however, may be a difficult proposition.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Qorvo, Inc. (QRVO - Free Report) is a leading provider of core technologies and radio frequency (RF) solutions for mobile, infrastructure and aerospace/defense applications.
Qorvo has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 15.2% for the current year. Its earnings estimate for the current year has improved by 4.1% over the last 30 days.
Applied Materials, Inc. (AMAT - Free Report) is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.
Applied Materials has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 27.3% for the current year. Its earnings estimate for the current year has improved by 15.3% over the last 30 days.
VeriSign, Inc. (VRSN - Free Report) provides Internet infrastructure services that include domain name registry services and infrastructure assurance services.
VeriSign has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 10.5% for the current year. Its earnings estimate for the current year has improved by more than 3.6% over the last 30 days.
Aflac Incorporated (AFL - Free Report) through its subsidiary – American Family Life Assurance Company of Columbus – provides supplemental health and life insurance.
Aflac has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 8.5% for the current year. Its earnings estimate for the current year has improved by more than 2.2% over the last 30 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>