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Will Dow Rally Continue in the Long Term? 4 Top Picks

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The Dow -- one of the equity markets’ most closely watched indexes –- is showering attractive returns on investors in 2019. The 30-stock index is currently within striking distance to reach to its all-time high level. Moreover, its 50-day and 200-day moving averages are showing a long-term uptrend for the Dow.

Positive development on the trade war front and the Fed’s dovish monetary stance are likely to be long-term catalysts for the blue-chip index. Consequently, it will be prudent to invest in Dow stocks with favorable Zacks Rank.

Dow Surging Ahead in 2019

On Mar 19, the Dow closed at 25,887.38, reflecting a gain of 11% year over year. At present, the index is just 3.6% away to reach its all-time high closing of 26,828.39 recorded on Oct 3, 2018. In the first two months of this year, the Dow generated positive returns of 7.2% and 3.7%, respectively.

Notably, at the closing on Mar 19, the 50-day moving average of Dow rose to 25,177.43 from 25,128.34 in the previous day. Likewise, the 200-day moving average of Dow rose to 25,165.68 from 25,158.32 the day before. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered as long-term trend setter.

It is widely recognized in the technical analysis space that whenever the 50-day moving average line surged ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.

Moreover, 27 components of the total portfolio of 30 stocks on the Dow 30 index have provided positive returns so far this year. A strong bunch of 15 stocks have provided positive double-digit returns.

Two Major Catalysts for Dow

First, the 11-month long trade dispute between the United States and China is heading toward a likely resolution. If the two countries reach an amicable solution, a major concern for global economic slowdown will be eliminated.

The International Monetary Fund has identified ongoing tariff-related tussle between the United States and China as the primary factor for a perceived global economic slowdown in 2019. Several Dow stocks are sensitive to global economic conditions.

Second, the Fed is unlikely to change its benchmark interest rate structure in its two-day long FOMC meeting which stared on Mar 19. On Jan 30, the Federal Reserve decided to keep the federal funds target rate unchanged at 2.25 - 2.50%.

Per Powell, the central bank will maintain its dovish monetary stance at least for the time being. On Feb 27, in his testimony before the House Committee, Fed Chair Jerome Powell said that the central bank will not downsize its $4-trillion balance sheet this year.

Top Picks

Stock market momentum has remained largely unhindered despite volatility. We have been able to narrow down our search to four Dow stocks, which have moved higher so far this year and still hold potential provide further upside. All four stocks currently carry 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 price performance of our four picks year to date.

Cisco Systems Inc. (CSCO - Free Report) designs, manufactures and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The stock has surged 23% year to date. The company has an expected earnings growth rate of 17.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1.3% over the last 60 days.

United Technologies Corp. (UTX - Free Report) provides technology products and services to building systems and aerospace industries worldwide. The stock has advanced 18.8% year to date. The company has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for the current year has improved 1.9% over the last 60 days.

The Procter & Gamble Co. (PG - Free Report) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, Greater China, Latin America, India, the Middle East, and Africa. The stock has soared 10.9% year to date. The company has an expected earnings growth rate of 5.7% for the current year. The Zacks Consensus Estimate for the current year has improved 0.9% over the last 60 days.

NIKE Inc. (NKE - Free Report) designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. The stock has soared 18.3% year to date. The company has an expected earnings growth rate of 8.7% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 60 days.

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