Wall Street has had a rough run so far in 2018 after providing fabulous returns in 2017. Expectations of high inflation, the Fed’s monetary stance, lingering tariff related conflicts with China, plummeting crude oil prices, several geopolitical problems and yield curve inversion of sovereign bonds have resulted in severe market fluctuations on a regular basis.
The Dow 30 has been witnessing volatility in 2018 so far on account of investors’ apprehension regarding investing in risky assets like equities. However, a closer look into the index portrays a different picture. Not only have some of them provided good returns year to date, they also possess favorable Zacks Ranks. Consequently, it will be be a good idea to add these stocks to your portfolios at this time.
Dow Remains Volatile in 2018
The blue-chip index remains highly volatile this year. On Dec 12, it gained 0.6% or 157 points to close at 24,527.27. However, the index achieved its all-time intraday and closing high of 26,951.81 and 26,828.39, respectively, on Oct 3. So far in 2018, it recorded its lowest closing on Mar 23, at 23,533.20.
The Dow had entered correction territory on Feb 8, however, it successfully rebounded on Aug 27. The index had remained under correction zone for 138 trading sessions. This was the Dow’s second longest stint in correction territory after a 223-days session in 1961.
At present, the Dow is in negative territory with a decline of 0.8% year to date. However, at one stage, the index was up more than 8% year to date. So far, nine components of the 30 stock index provided double-digit returns.
Positive Development in US-China Trade Conflicts
On Dec 12, The Wall Street Journal reported that China is working on a plan to make significant changes to its industrial policy. The Chinese government is likely to allow foreign companies greater access its markets.
On Dec 11, Bloomberg reported that China is mulling over reducing tariffs on U.S.-made cars from 40% to 15%. The proposal has been submitted to the Chinese cabinet for review. On the same day, President Trump also tweeted that he is optimistic about a possible resolution to the trade tussle with China.
Notably, on Dec 1, U.S. President Donald Trump and his Chinese counterpart Xi Jinping reached an initial agreement to permanently iron out the eight-month old trade-related conflicts between the two countries. The truce will be valid for the next 90 days.
Strong Economic Fundamentals
In its second estimate, the Department of Commerce confirmed on Nov 28 that the U.S. GDP for the third quarter of 2018 expanded by 3.5%. This implies that the U.S. economy increased 3.3% in the first nine months of 2018, surpassing the target of 3% set by President Trump. Unemployment rate stayed at 3.7% in November, its 49-year low level.
On Nov 29, the Department of Commerce reported that personal consumption expenditures increased $86.9 billion or 0.6% in October, highest in seven months. October data exhibited growing momentum for consumer spending which constitutes over 70% of U.S. GDP. This could be a signal for robust fourth-quarter GDP data.
Our Top Picks
At this stage, it will be a prudent move to invest in Dow 30 stocks. Each of our picks has provided more than 5% return so far in 2018 and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
The Boeing Co. (BA - Free Report) : The company recorded 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 3.4% over the last 60 days.
Merck & Co. Inc. (MRK - Free Report) : The company recorded 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 1.4% over the last 60 days.
Microsoft Corp. (MSFT - Free Report) : The company recorded 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.
American Express Co. (AXP - Free Report) : The company recorded 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 1.5% over the last 60 days.
Johnson & Johnson (JNJ - Free Report) : The company recorded positive earnings surprise of 1.7% in the last four quarters. It has expected earnings growth of 11.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 60 days.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>