The month of July is looking to be a cheerful one for the Wall Street. While the first trading day of July has been largely bullish so far this century, the entire month has also successfully bucked the historical trend of seasonal weakness over the past five years.
Stocks are, at the same time, expected to be firmer heading into July after President Trump dropped plans of imposing a hard-hitting policy that would curb Chinese investments in the United States. Beijing also relaxed some foreign investment restrictions, ebbing trade-related concerns at least for the time being.
Given such bullishness, investing in sound stocks that can make the most of the upward journey seems prudent.
First Trading Day of July: The Most Bullish Day of the Year for Stocks
Historically, the first trading day of July is the most bullish for the S&P 500 index since the beginning of the new century. This year, that’s July 2. The ‘win’ rate for the S&P during the first trading day of July so far this century is 83%. The win rate for the Dow Jones and the Nasdaq are 77.77% and 72.22%, respectively. So, the S&P is a clear winner and the broader indexes’ average return for that particular day is 0.35%.
This promising seasonality trend has encouraged investors to take long positions ahead of Jul 2. After all, the best trading day comes at a seasonally weak period of the year, better known as the summer stagnation. The summer rally is always the weakest of all seasonal rallies. In fact, in mid-term election years, it gets worse. The S&P doesn’t get going until October. Keep in mind, 2018 is a mid-term election year.
July Ranks Among the Best Months of the Year for Stocks
The first half of July also, somehow, tends to be mildly bullish, and often hosts a brief summer rally. Lest we forget, July has been the fifth-best month of the year for the S&P. The benchmark index has typically gained 1% on average, according to the Stock Trader’s Almanac. Statistics have shown that over the last 67 years, July has been positive 42 times for the S&P.
By the way, the historical trends embodied by the phrase “sell in May and go away” or the stretch between the start of May and the end of October have been a seasonally weak period for the market in the long term, but, that trend hasn’t held in the last five years, according to the WSJ Market Data Group.
There’s No Sign of a Bear Market
The S&P, in the meanwhile, has been in the correction territory ever since February. As of Jun 28, the broader gauge has been in correction for 98 trading days, the longest since the financial crisis in 2008. The S&P has failed to hit new record highs, which would have been needed for the index to exit the correction territory.
Such a range bound trading for months was mostly due to the inconsistent trade policy and shifting opinions over whether tensions between the United States and its major trading partners are escalating. President Trump has been, for some time, embroiled in a trade conflict with China and is also mired in trade spats with the European Union, Mexico and Canada.
But, the biggest challenge is China. More than 800 Chinese exports, worth $34 billion, will be subject to tariffs starting July and another 280 or so will go through a public comment period and take effect later. Trump has also threatened to impose tariffs on additional $400 billion more of goods imported from China. The Asian nation, in return, vowed to oppose trade protectionism and unilateralism.
Trump, however, has recently dropped plans of imposing new restrictions on Chinese investments in the United States. In fact, the Trump administration adopted a less confrontational approach with the world’s second-largest economy and seeks cooperation with the Congress.
Trump took the decision after his administration cautioned that the new restrictions would affect the economy. Any escalation in trade tensions between the United States and China could be very disruptive. It could even lead to a full-blown recession and eventually squeeze corporate profits. This has provided the much needed boost to the broader markets ahead of July, with the S&P showing signs of renewed strength.
5 Best Stocks to Buy Before Jul 2
Banking on such encouraging seasonal trends and positive developments on the geopolitical front, the broader S&P is poised to scale north. We have, thus, selected five stocks that can make the most of this uptrend. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B, which offer the best opportunities in the growth investing space.
Chevron Corporation (CVX - Free Report) engages in integrated energy, chemicals, and petroleum operations. The stock currently has a Zacks Rank 1 and a Growth Score of A. In the last 60 days, seven earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 24.7% in the same period.
The company’s expected earnings growth rate for the current quarter is 137.4% compared with the Oil and Gas - Integrated - International industry’s gain of 135.9% and the broader S&P’s rally of 28.4%.
The Boeing Company (BA - Free Report) manufactures, sales, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. The stock currently has a Zacks Rank 2 and a Growth Score of A. In the last 60 days, two earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings increased 0.9% in the same period.
The company’s expected earnings growth rate for the current quarter is 33.7%, in contrast to the Aerospace - Defense industry’s projected decline of 2.2%.
Mastercard Incorporated (MA - Free Report) provides transaction processing and other payment-related products and services. The stock currently has a Zacks Rank 1 and a Growth Score of B. In the last 60 days, 16 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 5.3% in the same period.
The company’s expected earnings growth rate for the current quarter is 40% compared with Financial Transaction Services industry’s rally of 38.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Walt Disney Company (DIS - Free Report) operates as an entertainment company. The stock currently has a Zacks Rank 2 and a Growth Score of B. In the last 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 2.7% in the same period.
The company’s expected earnings growth rate for the current quarter is 31.7% compared with Media Conglomerates industry’s rise of 18.5%.
Beazer Homes USA, Inc. (BZH - Free Report) operates as a homebuilder. The stock currently has a Zacks Rank 2 and a Growth Score of A. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings went up 3.1% in the same period.
The company’s expected earnings growth rate for the current quarter is 78.3% compared with Building Products - Home Builders industry’s rally of 43.2%.
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