After a blockbuster start to 2018, Wall Street has been caught in a vicious circle of trading over the past two months as volatility and uncertainty have taken the center stage. While a combination of factors like solid earnings, upbeat economic data and new tax legislation have fueled the rally, inflation fears, protectionist and anti-trade Trump policies, Washington turmoil and faster-than-expected rates hike continue to weigh on stock returns.
Below we discuss some of the events that dominated the headlines in 1Q and influenced the market:
Technology Boom & Bust
The technology sector has experienced huge swings in the first quarter. It remained in the hot spot for investors given the dual tailwinds of a rising rate scenario and the new tax repatriation policy. A surge in FAANG stocks and emergence of cutting-edge technology have also added to the strength. Given its strong fundamentals, the sector easily survived a couple of massive selloffs – one in early February that took away nearly $194 billion from the market capitalization of the top tech stocks, according FactSet data.
The other selling spree was witnessed last week following the news of Facebook data breach that raised regulation concerns and once again snatched the sheen away from the FANG stocks and the broader sector. Notably, Facebook eroded about $100 billion in market cap since the scandal unfolded last week. The US-China trade war jitters also took a toll on the sector. Again, this week has turned out to be a scary one for the sector as FANG stocks erased about $180 billion from their market value on March 27 on a slew of bad news.
Despite twist and turns, technology is among the top performing sectors of the first quarter with the S&P Technology Index gaining around 2%. ACM Research Inc. (ACMR - Free Report) having a Zacks Rank #3 (Hold) and a VGM Score of D emerged as the winner, climbing more than 143%. The Zacks Consensus Estimate for 2018 has moved up from a loss of one cent to earnings of 20 cents over the past three months and has an estimated earnings growth of 5.26%.
Fed Raises Rate
As expected, the Federal Reserve, headed by Jerome Powell, raised interest rates for the sixth time since the financial crisis by 0.25% to 1.50-1.75% in his first meeting this month. The central bank hinted at gradual hikes for this year with two lift-offs but turned hawkish for 2019 and 2020 citing growing confidence in the strengthening economy. As a result, cyclical sectors like financials, industrials, and consumer discretionary are expected to benefit from a rising rates environment.
Some of the top-ranked stocks from these spaces saw a huge surge in their share price from a year-to-date look. These include Virtu Financial Inc. (VIRT - Free Report) up 79.2%, Capstone Turbine Corporation (CPST - Free Report) up 50.6% and Weight Watchers International Inc. up 47.8%. The trio has a Zacks Rank #1 (Strong Buy) or 2 (Buy), suggesting their continued outperformance in the months ahead. Further, these stocks are expected to generate solid earnings growth this year (VIRT - 178.95%, CPST - 81.82% for year (ending March 2019) and WTW – 56.36%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Oil Roller-Coaster Ride
Oil was off to a solid start in 2018 with the return of geopolitical risk in Iran, tightening supply and soaring demand. In fact, the first trading day of 2018 marked the strongest start for oil price since January 2014, as both West Texas Intermediate and Brent opened above $60 per barrel. The rally fizzled out as we moved ahead in the quarter due to rising output in the United States. However, the commodity has managed to hold up well lately with Brent at around $70 per barrel supported by tensions in the Middle East and the possibility of further falls in Venezuelan output.
With this, oil price rose 4% in the first quarter, putting it on track for the third consecutive quarterly gain and setting the stage for a strong rebound in the energy sector. This implies that investors should buy the beaten down momentum energy stocks having a better Zacks Rank and double-digit earnings growth rate for this year. Magellan Petroleum Corporation (TELL - Free Report) has a Zacks Rank #2 and a Momentum Score of A, with an estimated earnings growth rate of 62.2% for this year. It has lost about 30.4% in the first quarter.
Dow Jones in Correction Territory: Any Winner?
With many wild swings, Dow Jones is in correction territory to end the first quarter. It is down 10.4% from its all-time high made on Jan 26. General Electric (GE - Free Report) led the index down, shedding 23% followed by declines of 15.3% for Procter & Gamble (PG - Free Report) and 12.9% for Wal-Mart (WMT - Free Report) . However, Cisco (CSCO - Free Report) and Intel (INTC - Free Report) not only managed to hold up but also gained in double-digits. Cisco has a Zacks Rank #2 and an estimated earnings growth rate of 7.53% for this year while INTC has a Zacks Rank #3 and an estimated earnings growth rate of 2.31%.
Best & Worst Performing Stock
The terrible trading in Wall Street has spread across many sectors. BioAmber Inc. is the worst performing stock of the first quarter, shedding 90.2%. It has a Zacks Rank #3 and a VGM Score of F. Though the stock has an estimated earnings growth rate of 50.47% for this year, it witnessed no earnings estimate revision since its start. Further, it delivered a negative earnings surprise of 73.09% over the past four quarters.
Though the list of best performing stocks is small, Geron Corporation (GERN - Free Report) climbed the most with 232.2% gains. The Zacks Consensus Estimate for 2018 has been revised up from a loss of two cents to earnings of a penny over the past 90 days, representing a whopping year-over-year earnings growth of 105.56%. The stock has a Zacks Rank #3 and a VGM Score of F.
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