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Dow and S&P 500 Posts Fourth Weekly Gain: 5 Top-Ranked Picks

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The markets have been witnessing a bull run in July despite the presence of trade war concerns and geopolitical conflicts. In fact, stock market momentum remained largely unhindered in spite of recent volatility, signaling a recovery for Wall Street in the second half of 2018. The Dow 30 and S&P 500 – the two most closely watched indexes – reported gains for the four weeks of July.

Robust U.S. economy, strong labor market, solid consumer and business spending along with government’s deregulation policies is likely to pave the way for further upside. Massive tax cut and fiscal stimulus will act as catalysts. Consequently, investment in Dow or S&P 500 stocks with favorable Zacks Rank, strong earnings growth and estimate revision will be a prudent move.

Robust July for Dow 30 and S&P 500

In the four weeks of July the Dow 30 gained 0.8%, 2.3%, 0.2% and 1.6%, respectively. The S&P 500 also gained 1.5%, 1.5%, 0.1% and 0.6%, respectively.

This has happened for the first time since January when these two stock market benchmarks traded in the positive territory for four straight weeks. Year to date, the Dow 30 is up 3% while S&P 500 rose 5.4%.

U.S. GDP for Second-Quarter Soars

The U.S. GDP grew at 4.1% in the second-quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009.

In the second-quarter, consumer spending increased 4%, business investment grew 7.3% and government spending rose 3.5%. Notably, first-quarter 2018 GDP growth rate was revised to 2.2% from 2% reported earlier.

Strong Labor Market

On Jul 6, the Department of Labor reported that the U.S. economy added 213,000 non-farm jobs in June outpacing the consensus estimate of 196,000. Unemployment rate has grown from 3.8% in May to 4% in June.

However, the rise in unemployment rate is primarily due to 0.2% increase in the labor force participation rate. In June, 601,000 Americans re-entered in the job market. (Read More: Weekly Jobless Claims Plunge to 48-Year Low: 5 Top Picks)

Hyper Inflationary Expectations Overblown

In the second-quarter 2018, the personal consumption expenditure (PCE) price index rose at 1.8% per annum compared with 2.5% in the first quarter. Moreover, core PCE price index rose 2% compared with 2.2% in the previous quarter.

Earlier, the Labor Department data for the month of June also showed that average wage rate rose marginally by 0.2% to 2.7% on a year-over-year basis. All these data reduce investor’s concern about hyper-inflation.

Our Top Picks

Solid macro-economic fundamentals, government’s tax reform and deregulation proposals along with sustained strong earnings performance are major tailwinds for the U.S. economy. Such factors are unlikely to disappear in the near term. At this stage, investment in the Dow 30 and S&P 500 stocks will be lucrative.

We have narrowed down our search to five stocks each carry a Zacks Rank #1 (Strong Buy) along with strong earnings growth and estimate revision. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below depicts price performance of our five picks year to date.

ConocoPhillips (COP - Free Report) is a major global oil exploration and production company with worldwide operations. The company has expected earnings growth of 611.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

The Progressive Corp. (PGR - Free Report) provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. The company has expected earnings growth of 66.9% for current year. The Zacks Consensus Estimate for the current year has improved by 6% over the last 30 days.

W.W. Grainger Inc. (GWW - Free Report) is the leading broad line supplier of facilities maintenance products serving businesses and institutions throughout North America. The company has expected earnings growth of 39.7% for current year. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 30 days.

Microsoft Corp. (MSFT - Free Report) is the global leader in desktop and server software solutions as well as mobile phone operating systems. The company has expected earnings growth of 11.9% for current year. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 30 days.

Comerica Inc. (CMA - Free Report) is a financial services company offering retail banking, business banking and wealth management services. The company has expected earnings growth of 48.3% for current year. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 30 days.

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