As we step into a busy month of April, the Dow Jones and the S&P 500 are anticipated to fall below an important technical support level for the first time since the election, raising apprehensions of a tumultuous period ahead. Disappointing vehicle sales and unsatisfactory manufacturing data augmented worries, while the collapse of the Republican plan to repeal Obamacare has got the Wall Street worried about other corporate-friendly measures taking a backseat.
The Obamacare revocation plans failed in a dramatic fashion after the new President found it difficult to convince both centrists and right-leaning members of his party. Blackstone Group Vice Chairman John Studzinski recently said that the equity markets could take as much as a 10% hit if reform fails to translate into legislation. This is indeed a worrying sign at a time when valuations are looking increasingly stretched in the U.S.
Given this scenario, investing in companies that pay consistent dividends can make for wonderful investments. Such companies are financially stable and mature, and can even generate steady cash flow irrespective of market conditions.
Indices to Fall Below 50-Day MA
U.S stocks saw a disappointing start to April, with chances of the Dow and the S&P 500 closing below their 50-day moving averages for the first time since the presidential election. If the indices finish below this key level, there are chances that they will move further south, until and unless, some major catalyst drives them higher. After the fall, the Dow is just 0.1% above its 50-day moving average, while the S&P 500 is 0.3% higher than its moving average.
Undoubtedly, major benchmark indices are headed for a tough time this month, with April shaping up to be a volatile month. The technology sector, which was the best performing sector in March, has also stretched pretty much. Until we gain clarity on which sectors will lead in the near term, we can expect bouts of gyrations in the broader markets.
Vehicles Sales, Manufacturing Data Lack Luster
The uninspiring vehicles sales were primarily responsible for the dismal start to the month. U.S. automakers’ sales figures lagged expectations, indicating that America’s robust boom cycle for car sales is slowly losing steam. The seasonally adjusted annualized rate (SAAR) for light vehicles in March came in at 16.53 million units, much below analysts’ expectations. Such a critical industry metric has dipped below the 17 million mark for the first time since August.
Rising inventory levels and a pricing war in the market are making automakers bleed. Sales at major automakers like Ford Motor Company
F, Fiat Chrysler Automobiles N.V. FCAU and General Motors Company GM took a beating on declining passenger car sales.
Soft manufacturing data also raised concerns over the economic outlook and intensified the market’s cautious tone. Resurgence among American manufacturers that began after the election of Donald Trump found it hard to sustain momentum heading into March. The U.S. Markit manufacturing purchasing manager’s index fell to 53.3 in March from 54.2 in the previous month, while a reading of manufacturing from the Institute for Supply Management for March fell to 57.2 from 57.7.
‘Boring’ GDP Growth
However, one shouldn’t be blaming the manufacturing report as the source of the boredom in is in the economy itself. The Bureau of Economic Analysis has raised its estimate for fourth-quarter economic growth of 2016 from 1.9% to 2.1%. However, the Bureau has revised its three-month economic growth estimates by 0.2%, which makes the current revision exactly average, a boring revision to a boring measure.
In fact, since the Great Recession, this measure has shown nominal growth. Of the last 30 quarters, the economy contracted in two, remained stagnant in six, grew at an anemic pace in 15, and only unveiled true signs of vigor in two quarters, at the end of 2011 and the middle of 2014.
“Trump Trade” Fades
The indices edging close to their 50-day moving averages, reflects that the bullish sentiment on Trump’s market-friendly initiatives would be imbedded in the law soon, is fading. Trump’s polices including tax cuts, repealing regulations and increased infrastructure outlays restored expectations of a pro-growth agenda.
But, the Republicans failed to secure enough votes for the much talked about healthcare bill. Trump’s failure to repeal and replace Obamacare made investors’ increasingly skeptical on whether he will be able to deliver on the other economic policies that had drove the S&P 500 to a peak of 2,400 in early March (read more:
5 Stocks for Bargain Hunters as "Trump Trade" Deflates). Lofty Valuations
Let us also not forget that after the markets set a fierce pace of gains in the first quarter, more investors say that stocks are overvalued than undervalued. Multiples on U.S. stocks remain higher than before the election. The valuation on a forward price-to-earnings measure for the S&P 500 continues to hover at its highest level since 2004.
The current valuation is a lot dependent on Trump getting through his economic agenda. However, as mentioned earlier, if Trump further runs into trouble with tax reforms then stretched valuations will certainly make investors more nervous.
5 Dividend Players for an Uncertain April
Dealing with dividend stocks is the best practice during uncertain times. The best dividend stocks pay out a healthy yield and have strong prospects, and are less susceptible to market downturns. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.
While finding companies that offer these traits isn’t easy, they certainly do exist. To help you find these elite businesses, we have selected five dividend payers who have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a
VGM scoreof ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. Preferred Apartment Communities Inc. APTS is a real estate investment trust (REIT). The company has a Zacks Rank #2 and VGM score of ‘B’. Preferred Apartment Communitieshas a dividend yield of 6.66%, while its five-year average dividend yield is pegged at 10.6%.
The company is likely to yield a return of 12.2% this year, more than the
REIT and Equity Trust - Residential industry’s gain of 5.3%. Seagate Technology PLC ( STX Quick Quote STX - Free Report) is a provider of electronic data storage technology and solutions. The company has a Zacks Rank #2 and VGM score of ‘A’. Seagate Technology has a dividend yield of 5.49%, while its five-year average dividend yield is 20.8%.
The company is projected to yield a return of 99.1% this year, way higher than the
Computer- Storage Devices industry’s increase of 13.9%. Tallgrass Energy Partners LP TEP owns, operates, acquires and develops midstream energy assets in North America. The company has a Zacks Rank #2 and VGM score of ‘B’. Tallgrass Energy Partners has a dividend yield of 6.13%. Its five-year average dividend yield is a whopping 78.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is expected to yield a return of 45.1% this year, more than the
Oil and Gas - Production and Pipelines industry’s gain of 18.1%. Big 5 Sporting Goods Corporation BGFV is a sporting goods retailer in the western United States. The company has a Zacks Rank #1 and VGM score of ‘A’. Big 5 Sporting Goods has a dividend yield of 3.97%, while its five-year average dividend yield is pegged at 11.4%.
The company is projected to yield a return of 35.4% this year, higher than the
Retail - Miscellaneous industry’s gain of 15.5% Salem Media Group, Inc. SALM operates as a multi-media company in the United States. The company has a Zacks Rank #2 and VGM score of ‘A’. Salem Media has a dividend yield of 3.49%, while its five-year average dividend yield is 15.3%.
The company is projected to yield a return of 6.7% this year, as against the
Broadcast Radio and Television industry’s expected decline of 5%. Warning!
The latest American Association of Individual Investors survey confirmed that the percentage of bullish sentiments fell 16 points from the beginning of 2017 to 30.2%, while bearish sentiment went up 12.2 points to 37.4%. Hence, stay invested in the above-mentioned dividend players for safe and better returns.
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