Wall Street staggered into 2019, leaving behind the worst year in a decade. Its three major benchmarks posted the worst annual performance since the financial crisis. The S&P 500, in particular, closed in the red for the first time in three years.
The year was also the first since 1948 when the index ended in losses after increasing in the first three quarters. But is it all doom and gloom as we head into 2019? Many market watchers would want us to believe so.
But on closer examination, a near-term recession seems unlikely. Meanwhile, the job market remains robust and the Trump administration continues to promise that the trade dispute with China will have an agreeable ending. This is why it makes sense to bet on select S&P 500 stocks, as the index is likely to close 2019 on a far better note.
Near-Term Recession Unlikely
Ultimately, most of last year’s losses were attributable to a dismal fourth quarter and a horrifying December. The S&P 500 suffered its worst December since 1931. Trade tensions, a tougher rate environment and the recent government shutdown intensified the negative movements on the bourses.
However, the economy is still on expansion mode. Goldman Sachs (
GS - Free Report) has cut its outlook for the first half of the year from 2.4% to 2% and its projection for the second half is at 1.75%. However, it thinks a cooling off is required to “land the plane.” Several economists share this view, dismissing talks of a near-term recession.
By this July, the current expansion, which started on Jul 1, 2009, will be the longest in U.S. history. It will then overtake the decade-long economic expansion which started in March 1991. Consumer confidence remains strong and debt burdens are low.
Meanwhile, Morgan Stanley projects that tax inflated paychecks will result in a “record-high tax refund season.” Additionally, the continuing slump in gasoline prices will enhance the purchasing power of the U.S. consumer.
VIDEO Labor Market Remains Solid
Probably the most positive aspect of this economic expansion is the robust state of the jobs market. The unemployment rate continues to inch lower while job additions remain strong. More importantly, wage growth, which was largely absent through this growth phase, was a significant feature of 2018.
Meanwhile, the jobs quits rate increased substantially last year. The resilience of the jobs market has raised the spending propensity of Americans. Retail sales increased 5% year over year this holiday season, per analysis released post-Christmas by MasterCard (
MA - Free Report) . Trade Deal Around the Corner?
Possibly the biggest worry for investors last year was the trade tussle with China. A deal seemed elusive at most times despite promises by the Trump administration that crucial progress had been made on this front. Goldman Sachs expects more retaliatory tariff action this year.
However, the investment banking firm does concede that an agreement could be inked later this year. China’s economy and equity markets are starting to feel the pain of this lingering conflict. Trump tweeted on Saturday that he had held a fruitful telephonic discussion with President Xi. According to him, “big progress” was being made and a deal with China was “moving along very well.”
Despite the pessimism surrounding this year’s market prospects, things may not be as tricky as they seem. A robust economy and strong labor market will likely continue to fuel optimism. A trade deal with China may also be reached, providing much-awaited relief to investors.
In view of these factors, we have narrowed our search to the following S&P 500 stocks based on a good Zacks Rank and other relevant metrics.
TripAdvisor Inc. ( TRIP - Free Report) is one of the largest online travel research companies in the world.
The company’s expected earnings growth for the current year is 57%. The Zacks Consensus Estimate for current-year earnings has improved 20.1% over the past 60 days. The stock rallied 54.3% in 2018. It sports a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here. Advance Auto Parts, Inc. ( AAP - Free Report) operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts.
Advance Auto Parts has a Zacks Rank #2 (Buy). The company has expected earnings growth of 35.6% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 0.3% north over the past 30 days. The stock increased 47.1% in 2018.
Red Hat Inc. ( RHT - Free Report) offers open source software solutions that include operating system, virtualization, management, middleware, cloud, mobile and storage technologies.
Red Hat has a Zacks Rank #2. The company has expected earnings growth of 17.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.9% over the past 30 days. The stock gained 42.7% in 2018.
Eli Lilly & Company ( LLY - Free Report) is a global healthcare company.
Eli Lilly has a Zacks Rank #2. The company has expected earnings growth of 32.5% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 0.1% north over the past 30 days. The stock increased 36% in 2018.
Salesforce.com, Inc. ( CRM - Free Report) is the leading provider of on-demand Customer Relationship Management ( CRM - Free Report) software.
Salesforce has a Zacks Rank #2. The company has expected earnings growth of 93.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 4% over the past 60 days. The stock rose 30% in 2018.
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