Despite the reverses suffered during March, the Dow notched up substantial gains over the first three months of the year. But the biggest takeaway of the period was that the much vaunted early beneficiaries of the "Trump Rally" have been left by the wayside as the quarter progressed.
Instead, stocks which had been out of favor for a considerable period have ended up at the top. In fact, stocks remained unfazed by the end of the Trump Trade to close the period on a strong note.
Tech Stocks End at the Top
Quite like the rest of the broader market, the Dow’s 4.6% gain over the first quarter was built on sectors which were out of favor before the Trump rally began. The blue-chip index’s sixth quarterly gain was clearly not a product of wins for the much touted sectors of the immediate phase post the declaration of presidential election results. Financials managed to chalk up gains of only around 2% while the energy sector ended 7.2% lower.
Ultimately, it was technology stocks, up more than 10% year to date, which set the pace for market gains. The S&P 500 Information Technology Sector has gained around 12.5%, emerging as the biggest beneficiary of the Trump rally. Widely expected to end up on the losing side in the Trump era, gains for tech stocks are a result of several factors. While the sector is believed to be less susceptible to tax and interest rate changes, it is also slated to benefit from Trump’s policy initiatives.
Energy, Financials Flounder
Meanwhile, energy stocks have suffered despite an impressive 90% compliance level from OPEC producers who pledged output cuts in an effort to tackle lingering oversupply concerns. However, volumes across several major producers are still at worrying levels, leading to fears about the sustainability of the agreement. Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) have declined 9.1% and 8.8% over the first quarter, emerging as the biggest losers for the Dow.
Financials have been weighed down by the relatively conservative stance that the Fed has taken on the speed and number of future rate hikes. It comes as no surprise then that the likes of JPMorgan (JPM - Free Report) have gained only 1.8% while Goldman Sachs (GS - Free Report) has ended the period 4.1% lower.
Dow Losses in March, Rebounds in Final Stretch
Another astonishing aspect of the Dow’s quarterly advance is the fact that this occurred despite the not insubstantial losses in March. Over the last month, the index lost 0.7%. The reflation rally ran out of steam after the current administration failed to secure adequate votes to pass a Republican-led Healthcare bill through the House of Representatives. Failure to pass the healthcare bill intensified investor concerns about the Trump administration’s ability to implement pro-growth policies.
But over the last week of the month, the Dow rebounded, notching up gains of 0.4% over the five-day period. A section of market watchers believe that this happened because Trump managed to change the ongoing narrative. Deflecting attention from his failure to push through a new healthcare law, Trump has now chosen to focus on his electoral promise to cut taxes.
A more reasonable argument is that investors have chosen to focus on a global economic resurgence. On the domestic front, GDP increased by 2.1% over the fourth quarter while the consumer confidence index surged to a 16 year high. Meanwhile, a vast majority of countries across the world have been exhibiting manufacturing sector expansion, a phenomenon which was missing over the last two years.
4 Top Dow Gainers for Q1
Performance of Four Highest Gainers Over Q1
Apple Inc. (AAPL - Free Report) has emerged as the top gainer for the Dow during the first quarter. With an increase of around 24% over the period, the iconic iPhone maker is miles ahead of the rest of the competition. The Zacks Rank #3 (Hold) rated stock has been primarily responsible for the tech sector’s outperformance over the recently concluded quarter.
A variety of factors contributed to the stock’s gains, including a rebound in iPhone sales growth, investments made by Warren Buffet and the company’s efforts to boost its services revenue. Apple has expanded its market capitalization by more than $140 billion over the period, an amount which is higher than the gains mopped by all other Dow components taken together.
Visa Inc. (V - Free Report) comes in next on the list with an increase of 13.9%. These gains have been driven primarily by the acquisition of Visa Europe and solid growth in payments volume as well as processed transactions. Notably, USAA and Costco volumes continued to drive the U.S. credit growth. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Boeing Company (BA - Free Report) features at the third spot on the list with an increase of 13.6% over the first three months of the year. This is probably because the Zacks Rank 3 rated stock has a strong balance sheet while its cash flows provide financial flexibility in matters of incremental dividend. Ongoing share repurchases and earnings accretive acquisitions are other factors responsible for the stock’s success. (Read: Boeing (BA - Free Report) Wins $169M Air Force Contract to Upgrade Radars)
Cisco Systems, Inc. (CSCO - Free Report) rounds off the top four gainers of the Dow with an increase of 11.8%. This trend can primarily be attributed to improving revenues from subscription services as well as robust demand in the telecom sector. Order growth in new markets of the company remains encouraging.
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