After witnessing an astonishing rally for more than five months in a row, Wall Street suffered a major blow on Sep 3. All the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 2.8%, 3.5% and 5%, respectively. Moreover, the small-cap centric Russell 2000 dropped 3% and the mid-cap specific S&P 400 fell 3.1%. This was the worst single-day selloff since June.
Market's volatility may persist for a few more days as a section of market participants have already started panicking that larger corrections are in the offing. However, a closer look at yesterday's trading pattern clearly revealed that it was profit booking and not any major economic, financial or political factor that led to a meltdown. Consequently, market's pull down is likely to turn into a good entry point following levels that several economists and financial experts deemed as overvalued.
Percentage of Decline Uneven Among Sectors
Despite Wall Street's overall meltdown on Sep 3, a sector-wise analysis revealed that the magnitude of decline among different sectors of the economy was uneven.
Out of 11 broad sectors of the market's benchmark S&P 500 Index, the best three performers year to date — technology, communication services and consumer discretionary — suffered the most. Notably, it was the technology sector that single-handedly dove Wall Street out of the coronavirus-induced short bear market and acted as the primary catalyst for the new bull market.
In contrast, sectors like energy, utilities, financials and real estate, which are the biggest laggards so far this year, suffered a minor or not-so severe decline. More importantly, within the consumer discretionary sector, stocks from industries like leisure tour and cruise operators, airlines and retail store operators in fact gained solidly on Sep 3. These are the industries that suffered significantly due to lockdowns, and are now gaining on systematic reopening of the U.S. and global economies.
These facts clearly indicate that investors have realized profits on those stocks that skyrocketed in the past six months, especially the technology behemoths, and invested a part of their money in reopening stocks that are lagging in the race.
Technology Remains the Best Bet Despite Meltdown
The technology sector was the biggest sufferer in yesterday's market turmoil. Within the S&P 500 Index, this sector tumbled 5.7% on Sep 3, snapping a 10-day winning streak. Yet the technology sector is up an impressive 30.7% so far this year, defying the pandemic.
This overwhelming performance had prompted several economists and financial experts to comment that the technology sector is the new safe-haven investment landscape. The impressive showing by the technology sector indicates its inherent strength and growth potential.
In a coronavirus-stricken global economy, virtualization has become the norm for communications. This means the application of high-tech digitization. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. Additionally, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.
Our Top Picks
At this stage, it will be prudent to invest in large-cap (market capital > $20 billion) tech stocks that have skyrocketed year to date but suffered a sharp decline on Sep 3. We have narrowed down our search to five such tech stocks with strong short-term and long-term (3-5 years) growth potential.
All these stocks witnessed robust earnings estimate revisions in the last 7 to 60 days, indicating solid business prospects. 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 year to date.
salesforce.com.inc. (CRM - Free Report) is the leading provider of on-demand Customer Relationship Management software, which enables organizations to better manage critical operations such as sales force automation, customer service and support, marketing automation, document management, analytics and custom application development. The stock price tumbled 4.2% on Sep 3.
The Zacks Rank #1 company has an expected earnings growth rate of 25.1% for the current year (ending January 2021). Its long-term growth rate is 18% compared with 8.8% of the S&P 500 Index. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 7 days. The stock has climbed 63% year to date.
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 stock price plunged 10% on Sep 3.
The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). Its long-term growth rate is 25% compared with 8.8% of the S&P 500 Index. The Zacks Consensus Estimate for current-year earnings has improved by 165% over the last 7 days. The stock has soared 443.1% year to date.
Apple Inc. (AAPL - Free Report) designs, manufactures and sells iPhone, iPad, iPod, Apple TV, Mac personal computers, Apple Watch, HomePod and AirPods. These devices are powered by the iOS, macOS, watchOS and tvOS operating systems. The stock price plummeted 8% on Sep 3.
The Zacks Rank #2 company has an expected earnings growth rate of 8.8% for the current year (ending September 2020). Its long-term growth rate is 10.7% compared with 8.8% of the S&P 500 Index. The Zacks Consensus Estimate for the current year has improved 4.9% over the last 60 days. The stock price has appreciated 62.2% year to date.
Shopify Inc. (SHOP - Free Report) provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia and internationally. The stock price tumbled 5.5% on Sep 3.
The Zacks Rank #2 company has an expected earnings growth rate of more than 100% for the current year. Its long-term growth rate is 32.5% compared with 8.8% of the S&P 500 Index. The Zacks Consensus Estimate for current-year earnings has improved by 27.3% over the last 30 days. The stock has jumped 155.5% year to date.
Cadence Design Systems Inc. (CDNS - Free Report) offers products and tools that help customers to design electronic products. Through System Design Enablement strategy it offers software, hardware, and services and reusable IC design blocks to electronic systems and semiconductor customers. The stock price plummeted 7.7% on Sep 3.
The Zacks Rank #2 company has an expected earnings growth rate of 15.9% for the current year. Its long-term growth rate is 13.7% compared with 8.8% of the S&P 500 Index. The Zacks Consensus Estimate for the current-year earnings has improved 3.7% over the past 60 days. The stock price has rallied 55.9% year to date.
More Stock News: This Is Bigger than the iPhone!
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