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The Obama-Trump bull market on Wall Street is now the second strongest ever, with the broader market performing exceptionally well since Donald Trump was elected as the President. Wall Street’s post-election rally was driven by expectations of tax cuts, and supported by steady economic recovery and corporate earnings.

In fact, the equity market scaled new highs after the adverse effects of Irma waned, and easing of tensions between North Korea and the West increased risk appetite. Banking on such optimism, it will be judicious to invest in such stocks that have not only gained significantly during this record bull run but also have scope of scaling higher.

Obama-Trump Bull Market is Now Up 268%

The S&P 500 surged 268% since bottoming in March 2009, when the economy was struck by the Great Recession. This means that if you had invested $10,000 in the benchmark index during the dark days, it would be worth almost $37,000 today.

The existing bull run narrowly eclipsed the gains generated by the 1949-1956 bull run, as per data compiled by Bespoke Investment Group. It, however, fell short of the best bull run ever – the boom of 1987-2000. Such a boom started during the end of the Cold War and was later propelled by the internet revolution.

Nevertheless, this time around,  majority of the stock market’s gains happened during the tenure of former President Barrack Obama. During his eight-year tenure in office, the equity market more than tripled and reached top gear in the Trump era. The S&P 500 registered a staggering $2.04 trillion in market value since Trump’s election last November, said Howard Silverblatt, senior Index analyst at S&P Dow Jones Indices. One of the biggest beneficiaries is the information technology sector. Let us now look at the S&P 500 sector performance since Nov 8 –

Sectors% Gain
Information Technology27.06
Financials22.23
Health Care21.56
Materials17.38
Industrials16.26
Consumer Discretionary13.68
Utilities12.98
REITs9.27
Consumer Staples5.13
Telecommunication Services-3.96
Energy-6.71

 (Source: FactSet)

Trump’s Tax Policy Proposals

The benchmark index moved north after the election, in part, on expectations of tax reforms. A key component of such a tax reform is to bring overseas profits to the United States, without paying the 35% corporate tax rate. Under Trump’s proposal, companies need to pay only 10% on money they bring back, often known as “repatriation”.

Last week Trump said in North Dakota, “We must bring back trillions of dollars in wealth that’s parked overseas.” He wants to do so to spur jobs and growth. Tim Cook, Apple’s chief executive also said that it should be made mandatory for companies to bring money back to the government to spend it on building roads and bridges.

However, tax reforms did sway as the White House faced some hurdles to move its agenda forward, including in-party differences. Treasury Secretary Steven Mnuchin, however, gave a ray of hope.  At the CNBC-Institutional Investor Delivering Alpha conference, he said that the government will consider backdating tax cut to Jan 1 to give a boost to the American economy.

Economic Recovery Solid, Corporate Earnings Encouraging

In fact, stronger economic growth and corporate earnings, both at home and overseas, helped the stock market gain traction. The U.S. GDP expanded 3% in the second quarter, the fastest rate of growth in more than two years. An uptick in consumer outlays and business investment gave the economy a boost. Increased spending on goods and services pushed consumer expenditure up 3.3% in the said quarter. Consumer spending – the biggest driver of the economy – picked up on higher income for consumers and low inflation.

Meanwhile, the Q2 earnings season is nearing its end. Total earnings for the S&P 500 members in the quarter increased 11.6% from the same period last year on 6.1% higher revenues. Additionally, total Q3 earnings for the S&P 500 members are expected to increase 4.2% from the same period last year on 5.6% higher revenues. For this year, total earnings for the S&P 500 members are expected to increase 8.1% on 5% higher revenues, which would follow a paltry 0.7% earnings growth on 2.1% higher revenues last year (read more: Favorable Earnings Trend Expected to Continue).

Stocks Set New Highs as Irma, North Korea Fears Ebb

Wall Street, meanwhile, breathed a sigh of relief after hurricane Irma shifted its direction and eased fears of widespread devastation in Florida. Irma gradually lost strength once it made landfall on the Florida Keys on Sep 10. The eye of the storm missed Miami and lost steam once it crossed the mostly uninhabited Everglades. Following this, Irma was downgraded to a tropical storm.

Investors were also relieved that tensions between the United States and North Korea didn't worsen further, following a national holiday in the rogue nation. The White House wants the United Nations to impose an oil embargo on North Korea and at the same time freeze Kim Jong-un’s assets in response to his regime’s sixth nuclear test last week. The United States is also demanding a ban on North Koreans working abroad since they pass most of the foreign currency to the regime.

Top 5 Winners

Banking on such positives, we have selected five solid stocks that have outperformed in the current bull market and have the scope of gaining further traction. These stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boost a VGM score of 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.

KEMET Corporation (KEM - Free Report) is a manufacturer of passive electronic components. The company operates in two segments: Solid Capacitors, and Film and Electrolytic. The company has a Zacks Rank #2 and a VGM score of A. The company’s expected growth rate for the current and the next quarters are 242.3% and 268.2%, respectively. The company has given a huge return of 6470% in the Mar 9, 2009-Sep 13, 2017 period.

Heska Corp (HSKA - Free Report) sells veterinary diagnostic and specialty products. The company operates through two segments: Core Companion Animal Health (CCA) and Other Vaccines, Pharmaceuticals and Products (OVP). The company has a Zacks Rank #2 and a VGM score of B. The company’s expected growth rate for the next quarter is 26.1%. The company has given a huge return of 3914.2% in the Mar 9, 2009–Sep 13, 2017 period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit AeroSystems Holdings, Inc. (SPR - Free Report) is a non-original equipment manufacturer (OEM), aircraft parts designer and manufacturer of commercial aero-structures. The company is also a supplier of aero-structures. The company has a Zacks Rank #2 and a VGM score of A. The company’s expected growth rate for the current and the next quarters are 7.8% and 38.9%, respectively. The company has given a huge return of 656.2% in the Mar 9, 2009-Sep 13, 2017 period.

American Woodmark Corporation (AMWD - Free Report) manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The company has a Zacks Rank #2 and a VGM score of A. The company’s expected growth rate for the current and the next quarters are 20.9% and 10.1%, respectively. The company has given a huge return of 513.4% in the Mar 9, 2009-Sep 13, 2017 period.

Kraton Corp (KRA - Free Report) is a specialty chemicals company. The Company manufactures styrenic block copolymers (SBCs) and other engineered polymers. The company has a Zacks Rank #1 and a VGM score of A. The company’s expected growth rate for the current and the next quarters are 60.3% and 191.4%, respectively. The company has given a huge return of 138.7% in the Mar 9, 2009-Sep 13, 2017 period.

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