The U.S. stock markets have been witnessing volatility since February 2018. In fact, two major stock indexes — Dow 30 and S&P 500 — are lingering in negative territory so far this year. Notably, a series of political issues have taken a toll on the stock markets overshadowing the solid growth outlook.
The recent stock market volatility may be transitory in nature, given the strong economic fundamentals of the United States. Further, markets are expected to continue their long-term uptrend.
However, investors should be prepared to minimize fluctuations in their portfolio and consequently should rebalance it with suitable financial assets to maintain stability. At this stage, it would be a prudent decision to pick up great value stocks to cushion the portfolio.
Geopolitical Tension: A Cause of Concern
On Apr 14, the United States, the UK and France jointly launched missiles strikes targeting strategic sites in Syria in response to a suspected poison gas attack by the reigning Bashar Assad government. Notably, Syria is a close ally of Russia and the missile strike immediately resulted in a political conflict between the United States and Russia.
Any escalation of war will no doubt impede the global economic growth. Meanwhile, news has surfaced that Russia’s lower house of parliament is considering a draft legislation allowing Kremlin to ban a list of U.S. products. This is in retaliation to recent U.S. sanctions on a group of Russian tycoon and officials.
Russian president Vladimir Putin has warned the western world that any further attack on Syria will result in a worldwide chaos. The White House is likely to reciprocate with fresh economic sanctions on Russia.
Trade War Fear Looms Large
Markets were gripped by fears of an ensuing trade war between the United States and China after President Trump imposed tariffs of as much as $50 billion of Chinese imports. Consequently, China too announced plans for reciprocal tariffs on about 130 U.S. goods worth of $50 billion of imports from the United States.
According to the Wall Street Journal, President Trump is likely to release a list detailing further tariffs on China, likely to be worth $100 billion. Trump has also threatened to block Chinese technology investment in the United States..
High Earnings Expectations May Backfire
Investors have pinned high hopes on first-quarter 2018 earnings. These massive expectations may result into short-term market volatility. On Apr 13, the market witnessed three major banks reporting better-than-expected results.
Yet, all those stocks lost significantly on the same day dragging down the overall market, simply because those strong results failed to encourage investors. High investors’ expectation may result in lofty valuations of the U.S. stock market, which, if they fail to deliver may backfire.
Our Top Picks
The U.S. remains volatile so far in 2018. Recent geopolitical and trade related concerns, lower-than-expected earnings results and return of inflationary pressure will certainly generate more fluctuations at least in the short-term. This in turn will force investors to put their money in safe assets.
In anticipation, it will be a prudent decision to buy value stocks on the dip that could prove to be valuable finds once the rally resumes. Our selection is also backed by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
We narrowed down our choices with the help of our new Style Score System. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value-investing space.
We have handpicked five stocks with a Zacks Rank #1 and a Value Score of A.
Price performance of our five picks in the last six months.
AMC Networks Inc. (AMCX - Free Report) is engaged in producing programming and movie content. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.2, lower than the industry average of 28.3. It has a PEG ratio of 7.4, lower than the industry average of 15.
Macy’s Inc. (M - Free Report) is one of the premier retailers of the United States, operating about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico. The stock has a P/E (F1) of 7.8, lower than the industry average of 12.4. It has a PEG ratio of 0.9, lower than the industry average of 1.3.
United States Steel Corp. (X - Free Report) is an integrated steel producer with production operations in the United States and Central Europe. The stock has a P/E (F1) of 7.1, lower than the industry average of 11. It has a PEG ratio of 0.8, lower than the industry average of 0.9.
ArcelorMittal (MT - Free Report) is the world's leading steel and mining company. The stock has a P/E (F1) of 8.4, lower than the industry average of 11. It has a PEG ratio of 0.6, lower than the industry average of 0.9.
United Natural Foods Inc. (UNFI - Free Report) is the largest publicly traded wholesale distributor to the natural, organic and specialty industry in the United States and Canada. The stock has a P/E (F1) of 14.3, lower than the industry average of 18. It has a PEG ratio of 1.7, lower than the industry average of 2.
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