Wall Street's smooth run since the last week of March is being interrupted intermittently with the second wave of coronavirus hitting most of the United States. Trading pattern of the last one month is marked with high volatility. One example will make this clear.
On Jul 13, the S&P 500 and the Nasdaq Composite pulled back 0.9% and 2.1%, respectively. However, in intraday trading, these indexes were up 1% and 2%, respectively. The Dow managed to gain marginally less than 0.1%. However, the blue-chip index was up as much as 2.2% at its intraday high.
Additionally, trading volume remained very thin with average daily volume below the 20-day moving average for most of the trading days in the past month. Yet, after rallying in the last three consecutive months, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 1.1%, 1.8% and 3.3%, so far in July.
Wall Street witnessed this wonderful performance solely due to an extraordinary rally of the technology sector in the last three and half months, defying coronavirus-induced economic devastations.
Generally, investors opt for safe haven assets like government bonds, gold and high-yielding defensive stocks during severe market volatility. However, it seems that the growth-oriented technology sector has become the new safe haven.
Technology Sector Holding Its Ground
Defying coronavirus-induced severe volatility, the Technology Select Sector SPDR (XLK), one of the 11 broad sectors of the S&P 500 index, recorded its all-time high at 109.72 on Jul 13.
Moreover, the XLK is positive year to date with a gain of 15.5%. The Communication Services Select Sector SPDR (XLC) and the Consumer Discretionary Select Sector SPDR (XLY) are the two other sectors to remain in green year to date with a gain of 5.4% and 4.9%, respectively. The S&P 500 is down 2.3% year to date.
The volatility seen in Wall Street over the past three months flared up in June on a spike in new COVID-19 cases. The XLK remained the best performer within the S&P 500 index providing 24% and 6.5% returns, respectively. The benchmark itself gained 14.3% and 3.8% in the past three month and past month time frames, respectively.
Moreover, the tech heavy Nasdaq Composite is in positive territory year to date with a gain of 15.8%, while the broad-market S&P 500 Index is down 2.3% and the Dow is yet to recover 8.6% to enter positive territory in 2020.
Technology Sector is the Best
Last year, Wall Street saw its best performance in the last six years sailing primarily through the technology sector. The tech-laden Nasdaq Composite recorded 35.2% gain. In contrast, in 2020, when the overall market is struggling thanks to the global outbreak of COVID-19, it is again the technology sector that appears the only silver line safeguarding investors' money to a great extent.
The last few years witnessed a series of breakthroughs in cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, which have set the stage for robust growth for technology stocks. In this regard, large-scale commercial deployment of 5G wireless network has boosted the overall technology sector.
Our Top Picks
At this stage, it will be prudent to invest in large-cap (market capital > $15 billion) tech stocks with a favorable Zacks Rank. We have narrowed down our search to five such stocks that have strong growth potential for 2020 and popped in the past month. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past month.
NVIDIA Corp. (NVDA - Free Report) is gaining decent market share among the gaming service providers. The strong line up of advanced graphics cards has made it a favorite graphics card provider among PC makers. Datacenter presents solid growth opportunity for the company. NVIDIA’s GPUs are rapidly gaining from the proliferation of artificial intelligence. The company has an expected earnings growth rate of 36.4% for the current year (ending January 2021). The stock has appreciated 9.5% in the past month.
Zoom Video Communications Inc. (ZM - Free Report) provides a video-first communications platform worldwide. Demand for its remote work platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or any effective treatment for coronavirus is developed. The company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). The stock has surged 8.9% in the past month.
Zscaler Inc. (ZS - Free Report) operates as a cloud security company focusing on transforming networks and applications for a mobile and cloud-first platform. The company has an expected earnings growth rate of 29.2% for the current year (ending July 2021). The stock has rallied 14.7% in the past month.
Veeva Systems Inc. (VEEV - Free Report) provides cloud-based software for the life sciences industry in North America, Europe, the Asia Pacific, the Middle East, Africa, and Latin America. The company has an expected earnings growth rate of 16.4% for the current year (ending January 2021). The stock has advanced 8.2% in the past month.
Okta Inc. (OKTA - Free Report) provides identity management platforms for enterprises, small and medium-sized businesses, universities, non-profits, and government agencies in the United States and internationally. The company has an expected earnings growth rate of 38.7% for the current year (ending January 2021). The stock has gained 6.7% in the past month.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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