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4 Factors to Guide Wall Street's Course in April: 5 Top Picks
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Wall Street is on the verge of closing a blockbuster first quarter despite the perceived threat of a potential recession. All three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – are likely to provide double digit returns in first-quarter 2019. The benchmark S&P 500 index is heading for its best first quarter since 1998.
Will this momentum sustain in April? Although we do not have a clear cut answer at present, four important factors will determine the fate of Wall Street in coming months.
US-China Trade Conflict
The year-long tariff related problems between the United States and China has finally reached advanced stage of negotiations. On Mar 27, Reuters reported that China has made unprecedented proposals on a range of issues including protection of U.S. intellectual properties to resolve trade disputes. An amicable solution between the two of the world’s largest trading nations is likely to boost global economy.
Several industry experts have said that a US–China deal is already factored in the market. Nevertheless, such deal will no doubt bolster investor confidence on risky assets like equities. However, if the negotiation process lingers even beyond April, investors are likely to get jittery resulting in volatile trading.
First-Quarter 2019 Earnings
Expectations for first-quarter 2019 earnings are far from encouraging at present. Total earnings of S&P 500 Index are anticipated to be down 3.7% from the same period last year on 4.8% higher revenues. Current estimates indicate first earnings decline since the second quarter of 2016. The Technology sector is likely to take the biggest hit with the semiconductor space acting as the biggest drag. (Read More: Margin Pressures Weigh on Earnings Growth)
However, if actual earnings results fare better than expectations (even if that stays in the negative territory) it is likely to result in Wall Street rally. It is to be noted, Technology Select Sector SPDR (XLK) has been the best performer of S&P 500 for the first quarter and the second best performer in the past one month. The Philadelphia Semiconductor Index (SOX) jumped 17.9% year to date and 1.7% in the past one month.
First-Quarter 2019 GDP
Although we are yet to get consensus estimates for first-quarter GDP, the general sentiment in the investor space is that the U.S. economy will grow at a modest rate of around 1.5-1.7%. Historically, first-quarter GDP remains weak due to seasonal factors. To add to this, the United States faced partial government shutdown for a record 35 days this year.
However, a better-than-expected result will be a major boost for the market. Notably, the Atlanta Fed, which estimated first-quarter GDP growth at a meager 0.3% on Mar 4, revised it to 1.3% in Mar 26 and further to 1.5% in the next day.
Shape of the Treasury Yield Curve
On Mar 22, yield on 3-month US Treasury Note surged ahead of 10-year US Treasury Note resulting in yield curve inversion. Concerns about global economic slowdown and Fed’s extra dovish monetary stance compelled investors to opt for safe-haven government bonds lifting their prices. The yield curve inversion is continuing for last seven days.
Although an inverted yield curve is not resulting in an immediate recession, persistence of yield inversion for a long period will result in severe market volatility.
Our Top Picks
At this stage, it will be prudent to invest in stocks with favorable Zacks Rank. We have been able to narrow down our search to five stocks, which have moved higher in 2019 and still hold potential provide for further upside. 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. These companies also provide regular dividend.
The chart below shows price performance of our five picks year to date.
Hilton Worldwide Holdings Inc. (HLT - Free Report) is a hospitality company which owns, leases, manages, develops, and franchises hotels and resorts. Continual expansion is its major growth driver. During fourth-quarter 2018, Hilton opened 142 hotels, taking the total room count to 22,500. It also achieved net unit growth of 19,000 rooms, up 7% year over year.
The stock has surged 15.9% year to date. The company has expected earnings growth rate of 36.6% for the current year. The Zacks Consensus Estimate for the current year has improved 1.6% over the last 30 days. It has a dividend yield of 0.73%.
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. The company made significant progress in expanding digital and omni-channel capabilities. Notably, digital engagement with consumers has been its core strength.
The stock has surged 33.7% year to date. The company has expected earnings growth rate of 20.9% for the current year. The Zacks Consensus Estimate for the current year has improved 35% over the last 30 days. It has a dividend yield of 3.05%.
AMETEK Inc. (AME - Free Report) is a leading global manufacturer of electronic instruments and electromechanical devices. The company has a diversified geographic and industrial operations and highly differentiated product line. AMETEK is consistently introducing new and improved products to its rich product portfolio.
The stock has surged 21.4% year to date. The company has expected earnings growth rate of 22.8% for the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the last 30 days. It has a dividend yield of 0.69%.
Ralph Lauren Corp. (RL - Free Report) designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company is now progressing well with its “Next Great Chapter” plan that was announced in June 2018. This strategic growth plan focuses on delivering sustainable long term growth and value creation.
The stock has surged 25% year to date. The company has expected earnings growth rate of 16.8% for the current year. The Zacks Consensus Estimate for the current year has improved 0.1% over the last 30 days. It has a dividend yield of 1.99%.
Spirit AeroSystems Holdings Inc. (SPR - Free Report) is the world's largest independent supplier of commercial airplane assemblies and components. The company recognizes its fabrication business as one of its prime growth opportunities. In May 2018, it signed an agreement to buy S.R.I.F. N.V., the parent company of Asco Industries.
The stock has surged 26.1% year to date. The company has expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for the current year has improved 2.9% over the last 30 days. It has a dividend yield of 0.53%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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4 Factors to Guide Wall Street's Course in April: 5 Top Picks
Wall Street is on the verge of closing a blockbuster first quarter despite the perceived threat of a potential recession. All three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – are likely to provide double digit returns in first-quarter 2019. The benchmark S&P 500 index is heading for its best first quarter since 1998.
Will this momentum sustain in April? Although we do not have a clear cut answer at present, four important factors will determine the fate of Wall Street in coming months.
US-China Trade Conflict
The year-long tariff related problems between the United States and China has finally reached advanced stage of negotiations. On Mar 27, Reuters reported that China has made unprecedented proposals on a range of issues including protection of U.S. intellectual properties to resolve trade disputes. An amicable solution between the two of the world’s largest trading nations is likely to boost global economy.
Several industry experts have said that a US–China deal is already factored in the market. Nevertheless, such deal will no doubt bolster investor confidence on risky assets like equities. However, if the negotiation process lingers even beyond April, investors are likely to get jittery resulting in volatile trading.
First-Quarter 2019 Earnings
Expectations for first-quarter 2019 earnings are far from encouraging at present. Total earnings of S&P 500 Index are anticipated to be down 3.7% from the same period last year on 4.8% higher revenues. Current estimates indicate first earnings decline since the second quarter of 2016. The Technology sector is likely to take the biggest hit with the semiconductor space acting as the biggest drag. (Read More: Margin Pressures Weigh on Earnings Growth)
However, if actual earnings results fare better than expectations (even if that stays in the negative territory) it is likely to result in Wall Street rally. It is to be noted, Technology Select Sector SPDR (XLK) has been the best performer of S&P 500 for the first quarter and the second best performer in the past one month. The Philadelphia Semiconductor Index (SOX) jumped 17.9% year to date and 1.7% in the past one month.
First-Quarter 2019 GDP
Although we are yet to get consensus estimates for first-quarter GDP, the general sentiment in the investor space is that the U.S. economy will grow at a modest rate of around 1.5-1.7%. Historically, first-quarter GDP remains weak due to seasonal factors. To add to this, the United States faced partial government shutdown for a record 35 days this year.
However, a better-than-expected result will be a major boost for the market. Notably, the Atlanta Fed, which estimated first-quarter GDP growth at a meager 0.3% on Mar 4, revised it to 1.3% in Mar 26 and further to 1.5% in the next day.
Shape of the Treasury Yield Curve
On Mar 22, yield on 3-month US Treasury Note surged ahead of 10-year US Treasury Note resulting in yield curve inversion. Concerns about global economic slowdown and Fed’s extra dovish monetary stance compelled investors to opt for safe-haven government bonds lifting their prices. The yield curve inversion is continuing for last seven days.
Although an inverted yield curve is not resulting in an immediate recession, persistence of yield inversion for a long period will result in severe market volatility.
Our Top Picks
At this stage, it will be prudent to invest in stocks with favorable Zacks Rank. We have been able to narrow down our search to five stocks, which have moved higher in 2019 and still hold potential provide for further upside. 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. These companies also provide regular dividend.
The chart below shows price performance of our five picks year to date.
Hilton Worldwide Holdings Inc. (HLT - Free Report) is a hospitality company which owns, leases, manages, develops, and franchises hotels and resorts. Continual expansion is its major growth driver. During fourth-quarter 2018, Hilton opened 142 hotels, taking the total room count to 22,500. It also achieved net unit growth of 19,000 rooms, up 7% year over year.
The stock has surged 15.9% year to date. The company has expected earnings growth rate of 36.6% for the current year. The Zacks Consensus Estimate for the current year has improved 1.6% over the last 30 days. It has a dividend yield of 0.73%.
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. The company made significant progress in expanding digital and omni-channel capabilities. Notably, digital engagement with consumers has been its core strength.
The stock has surged 33.7% year to date. The company has expected earnings growth rate of 20.9% for the current year. The Zacks Consensus Estimate for the current year has improved 35% over the last 30 days. It has a dividend yield of 3.05%.
AMETEK Inc. (AME - Free Report) is a leading global manufacturer of electronic instruments and electromechanical devices. The company has a diversified geographic and industrial operations and highly differentiated product line. AMETEK is consistently introducing new and improved products to its rich product portfolio.
The stock has surged 21.4% year to date. The company has expected earnings growth rate of 22.8% for the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the last 30 days. It has a dividend yield of 0.69%.
Ralph Lauren Corp. (RL - Free Report) designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company is now progressing well with its “Next Great Chapter” plan that was announced in June 2018. This strategic growth plan focuses on delivering sustainable long term growth and value creation.
The stock has surged 25% year to date. The company has expected earnings growth rate of 16.8% for the current year. The Zacks Consensus Estimate for the current year has improved 0.1% over the last 30 days. It has a dividend yield of 1.99%.
Spirit AeroSystems Holdings Inc. (SPR - Free Report) is the world's largest independent supplier of commercial airplane assemblies and components. The company recognizes its fabrication business as one of its prime growth opportunities. In May 2018, it signed an agreement to buy S.R.I.F. N.V., the parent company of Asco Industries.
The stock has surged 26.1% year to date. The company has expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for the current year has improved 2.9% over the last 30 days. It has a dividend yield of 0.53%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>