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Dow Records Highest Single Day Gain in 8 Months: 5 Picks

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Wall Street has been reeling under severe volatility in October and so far in November. However, the situation took a turn for the better this week as Wall Street rallied for the first three days. Notably, the Dow has gained nearly 1080 points in last three trading days.

Despite stock market mayhem, fundamentals of the U.S. economy remain strong which will help sustain the rally. Consequently, it will be a prudent move to invest in Dow stocks with a favorable Zacks Rank.

Dow Impresses

On Nov 28, the Dow rallied 2.5% or 617.70 points to close at 25,366.43. Notably, the blue-chip index posted its biggest single-day gain since Mar 26 after recording positive close in three successive days of trading. The three-day recovery has once again placed the index in positive territory year to date with a return of 2.6%.

Unlike other two major stock market indexes – the S&P 500 and Nasdaq Composite – the Dow is the only index which did not drop into correction territory for even a day. Moreover, 11 components of its 30 stock portfolio have so far provided remarkable double-digit return year to date.

Fed Chairman Hints Soft Monetary Policy

On Nov 28, the Fed Chairman Jerome Powell indicated that the interest rate may be close to a neutral level while delivering a speech at the Economic Club of New York. He stated “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.”

Powell’s latest comments regarding the benchmark interest rate was in sharp contrast to his earlier statement that there is a long way to go for the rate to hit a neutral level. Although Powell hasn’t given any indication that the central bank will not opt for a fourth rate hike for 2018 in December, market participants, who were closely watching this event are of the opinion that the Fed is going to reduce the current pace of rate hikes reflecting a soft monetary stance.

A Ray of Hope on Trade War Front  

On Nov 28, U.S. government officials citing U.S. government officials, The New York Times reported that President Trump is looking for a respectable compromise deal with China to resolve the eight month old tariff conflict between the two largest trading partners of the world. The newspaper reported that Trump is highly concerned about the negative impact of trade war on U.S. economy, particularly on the financial sector.

Notably, President Trump and Chinese President Xi Jinping are scheduled to meet on the sidelines of a G-20 summit in Argentina at the end of this week. On Nov 27, U.S. National Economic Council Director Larry Kudlow said the U.S. government has reopened negotiations on trade-related issues with China at several high powered levels.

Our Top Picks

At this stage, investment in Dow stocks with strong growth potential and solid year-to-date returns despite severe volatility will be lucrative. We have narrowed down our search to five such stocks each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below depicts price performance of our five picks year to date.

The Boeing Co. (BA - Free Report) : The company generated positive earnings surprise of 28% in the last four quarters. It has expected earnings growth of 25% for current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 60 days.

Merck & Co. Inc. (MRK - Free Report) : The company generated positive earnings surprise of 4% in the last four quarters. It has expected earnings growth of 9.1% for current year. The Zacks Consensus Estimate for the current year has improved by 1.6% over the last 60 days.

Microsoft Corp. (MSFT - Free Report) : The company generated positive earnings surprise of 11.9% in the last four quarters. It has expected earnings growth of 14.2% for current year. The Zacks Consensus Estimate for the current year has improved by 4% over the last 60 days.

UnitedHealth Group Inc. (UNH - Free Report) : The company generated positive earnings surprise of 3.7% in the last four quarters. It has expected earnings growth of 27.2% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 60 days.

American Express Co. (AXP - Free Report) : The company generated positive earnings surprise of 4.4% in the last four quarters. It has expected earnings growth of 25.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.9% over the last 60 days.

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