Markets continued their winning run in 2019, extending the first month’s gains into January. Trade tensions declined, with President Trump announcing that he was delaying additional tariffs on China, slated to come into effect from March. Strong GDP and consumer confidence data added to the bullish sentiment. The Fed’s tone remained dovish, while fourth-quarter earnings remained robust despite a decline in pace.
After a fabulous January, Wall Street’s rally continued in February. All the three major stock indexes — the Dow, S&P 500 and Nasdaq Composite — gained 3.7%, 3% and 3.4%, respectively.
Year to date, the indexes have gained 11.1%. 11.1% and 13.5%, respectively. Several positive developments on the trade war front, the Fed’s decision to put rate hikes on the backburner and a rebound of energy and technology sectors were the major catalysts to the benchmarks’ gains.
Mixed Economic Data
The ISM Manufacturing Index for January surged to 56.6%, surpassing the consensus estimate of 54.3%. Construction spending for November increased 0.8%, beating the consensus estimate of 0.2%. Also, the U.S. economy added 304,000 jobs in January, significantly higher than the consensus estimate of 154,000.
On the negative side, the rate of joblessness did inch up from 3.9% to 4%, but this was primarily due to the recent government shutdown. Also, factory orders declined 0.6% in November.
Retail sales declined 1.2%, in December, the largest monthly drop since September 2009. Spurts in jobless claims and lower-than-expected increases in durable goods and factory orders also gave cause for concern.
Q4 GDP, Consumer Confidence Shine
The consumer confidence index climbed to 131.4 in February from a revised 121.7 in January. Consumers’ optimism was largely driven by strength in the labor market. This was also reflected in strong fourth-quarter GDP numbers.
The second estimate for fourth-quarter GDP revealed that the U.S. economy expanded 2.6% during this period, significantly higher than the expected pace of 2.4%. A 2.8% jump in consumer spending was primarily responsible for this strong reading.
U.S.-China Trade Deal Increasingly Likely
On Feb 24, President Trump tweeted that “substantial progress” was made during last week’s trade negotiations. The issues covered during these talks include key U.S. concerns such as technology transfer and intellectual property.
Following such productive discussions, Trump has decided to defer the additional tariffs that were set to be levied on Chinese imports from Mar 1. The extension of the March deadline puts a freeze on the step up in tariffs from the existing rate of 10% to 25% on $200 billion of additional imports from China.
Further, the U.S. President is set to meet his Chinese counterpart at Mar-a-Lago, Florida to seal a long-lasting trade deal. According to CNBC, sources revealed that the meeting was set to take place late next month. (Read: U.S., China Move Closer to Trade Deal: 6 Winners)
Fed Maintains Dovish Stance
In his testimony to Congress on Feb 27, Fed Chair Jerome Powell said that the central bank was not looking to downsize its balance sheet further this year. Earlier in the week, Powell said that while the U.S. economy is currently at good shape, it may face headwinds from the economic slowdown in China, Japan and Eurozone.
He added that while job market data called for further rate hikes, some important economic indicators have softened in the last one month. Consequently, the Fed will maintain its dovish monetary stance at least for the time being.
Minutes of the Fed’s latest meeting also revealed a similarly dovish tone. Officials remained divided on the need to hike rates further this year.
Q4 Earnings Decelerate But Remain Strong
The picture that emerged from the Q4 earnings season is not great, but it is not as bad either. Growth is decelerating, which isn’t a surprise, as it was already known that Q4 growth would be materially below the pace set in the first three quarters of the year.
Further, companies appear to be struggling to beat consensus EPS estimates. We now have Q4 results from 445 S&P 500 members or 89% of the index’s total membership. This accounts for Q4 results from almost 97% of all companies.
Total earnings for these index members that have reported already are up 12.7% from the same period last year on 7.2% higher revenues, with 67.4% beating EPS estimates and 61.8% beating revenue estimates. (Read: Q4 Earnings Season Winding Down)
5Star Performers for February
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
- Percentage price change over the last 4 weeks greater than or equal to 20%
- Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
- Expected earnings growth for the current financial year greater than or equal to 20%
- Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top five stocks that made it through this screen:
JinkoSolar Holding Co., Ltd. (JKS - Free Report) is a solar product manufacturer based in China.
Price gain over the last 4 weeks = 54.4%
Expected earnings growth for current year = 60.9%
JinkoSolar has a Zacks Rank #1 (Strong Buy). The stock has a P/E (F1) of 7.07x.
DHI Group, Inc. (DHX - Free Report) offers specialized websites focused on select professional communities.
Price gain over the last 4 weeks = 47.6%
DHI Group has a P/E (F1) of 10.86x and its expected earnings growth for the current year is 100%. The stock holds a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Viomi Technology Co., Ltd (VIOT - Free Report) is a developer and seller of Internet-of-things-enabled (IoT-enabled) smart home products in China.
Price gain over the last 4 weeks = 42.3%
Viomi Technology has a Zacks Rank #2 (Buy) and its expected earnings growth for the current year is 100%.The stock has a P/E (F1) of 11.18x.
Plantronics, Inc. (PLT - Free Report) is a designer and manufacturer of audio communications products.
Price gain over the last 4 weeks = 40.1%
Expected earnings growth for current year = 34.1%
Plantronics holds a Zacks Rank #2. The stock has a P/E (F1) of 10.7x.
RYB Education, Inc. provides educational services primarily in China.
Price gain over the last 4 weeks = 36.1%
RYB Education holds a Zacks Rank #2 and its expected earnings growth for the current year is 100%. The stock has a P/E (F1) of 17.42x.
Will Gains Continue in March?
At this point, markets seem to be on a dream run with investors ignoring minor obstacles on their path. For instance, Trump’s inability to strike a deal with North Korea failed to prevent indexes from registering strong monthly gains. With trade tensions receding and the Fed’s dovish tone remaining constant, benchmarks are likely to chalk up stronger gains in the weeks ahead.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>