The Tariff Man has struck again and Wall Street has gone into a tailspin! President Trump doubles down on Mexico tariff as he builds pressure on the southern neighbor over surge in illegal immigrants trying to cross the U.S. border. This came as a rude shock to investors, as they were already reeling under China’s threat to curb supply of rare-earth minerals to the United States, and not to forget the inverted yield curve.
The best way to go about this tricky June is by investing in stocks that provide risk-adjusted returns.
Wall Street Cap Worst Month of the Year
The S&P 500 started this year on a strong note, with the broader gauge hitting an all-time high in April. But the index retreated more than 6% in May, suffering its first monthly decline since Christmas and its worst May performance since 2010. The index of blue-chip stocks, Dow also lost more than 6% in the month. The tech-laden Nasdaq currently stands 7.6% below its record high set on May 3, and pretty close to a correction.
What’s more, the U.S. stock market has lost $5 trillion in recent times, raising doubts about the longevity of the 10-year bull run for stocks. Binky Chadha, Deutsche Bank’s chief strategist, added that the current stock market crisis can be compared to the European financial crisis in 2011-12 as well as the collapse of crude prices in 2014-2016.
Factors Behind the Retreat
The May retreat, nonetheless, is largely due to the U.S.-China trade war that shows less chances of a near-term resolution. The trade tussle added to concerns about both global and U.S. economic growth. And such worries doubled after Trump said that he would impose new tariffs on all products imported from Mexico. He categorically mentioned that such tariffs will stay in effect until the illegal immigration problem is sorted.
Trump tweeted “on June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP.” And if the illegal immigration crisis persists, Trump said that tariffs will be hiked to 10% on Jul 1, and by another 5% every consecutive month, up to 25% by Oct 1. Trump said that “tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.”
But it’s just not Trump’s Mexico declaration, China’s plan to restrict rare-earth exports has also been adding to the concerns. Meanwhile, China’s Huawei Technologies is thinking of filing a lawsuit against the Trump administration in its latest effort to fight sanctions from Washington. The White House has added Huawei to its Entity List that includes companies that American firms can’t sell technology without obtaining a license from the U.S. government.
And we also cannot dismiss the yield curve inversion. After all, the 10-year treasury note yield has slipped below its 3-month, a tell-tale sign that an economic recession is in the offing despite American’s spending and income beating forecasts in recent times.
June Typically Rough for Investors
The misery for the stock market, in fact, should increase as we are in the month of June. Major bourses, including the Dow and the S&P 500, typically experience a substantial drop this month, according to the Stock Trader’s Almanac.
The Dow, on average, has shed around 0.3% in June, per data that goes back to 1950. In the last 68 years, the blue-chip index finished in the red for 36 times in June. For the broader S&P 500, June is the third-worst month of the year.
The phrase “sell in May and go away” reverberates the same idea. Investors typically sell their stock holdings in May to avoid a seasonal decline in equity markets. They return to the equity market in November.
VIDEO Don’t Shun Equities, Buy These 5 Stocks Now
As things aren’t going right for the markets, let’s take a look at stocks that may be worthy bets. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
Our chosen picks are also dividend payers, implying they have immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business.
But most importantly, these stocks are defensive players and are expected to do well during market downturns. This is because these stocks are generally non-cyclical, or companies whose business performance and sales are not highly correlated with activities in the larger market. Their products are in constant demand, irrespective of market volatility, and such names include companies from the utilities and consumer staples sectors.
Middlesex Water Company MSEX owns and operates regulated water utility and wastewater systems. The company currently has a Zacks Rank #1 (Strong Buy) and a beta of 0.43. The company has a dividend yield of 1.6%, while its five-year average dividend yield is pegged at 2.6%. The Zacks Consensus Estimate for its current-year earnings has risen 5.9% in the last 60 days. The stock’s expected earnings growth rate for the current year is 10.7%, higher than the Utility - Water Supply industry’s projected rally of 3.7%. NorthWestern Corporation ( NWE Quick Quote NWE - Free Report) provides electricity and natural gas to residential, commercial, and industrial customers. The company currently has a Zacks Rank #1 and a beta of 0.33. The company has a dividend yield of 3.3%, while its five-year average dividend yield is pegged at 3.5%.The Zacks Consensus Estimate for its current-year earnings has climbed 5.6% in the last 60 days. The stock’s expected earnings growth rate for the current year is 5%, more than the Utility - Electric Power industry’s estimated rally of 0.2%. Brookfield Renewable Partners L.P. BEP owns a portfolio of renewable power generating facilities primarily in North America. The company currently has a Zacks Rank #2 (Buy) and a beta of 0.55. The company has a dividend yield of 6.5%, while its five-year average dividend yield is pegged at 5.9%. The Zacks Consensus Estimate for its current-year earnings has moved up 56.7% in the last 60 days. The stock’s expected earnings growth rate for the current year is 261.5%, way more than the Utility - Electric Power industry’s projected rally of 0.2%. You can see the complete list of today’s Zacks #1 Rank stocks here. J & J Snack Foods Corp. JJSF manufactures, markets, and distributes nutritional snack foods and beverages in the United States. The company currently has a Zacks Rank #2 and a beta of 0.48. The company has a dividend yield of 1.3%, while its five-year average dividend yield is also pegged at 1.3%. The Zacks Consensus Estimate for its current-year earnings has risen 1% in the last 60 days. The stock’s expected earnings growth rate for the current year is 21.4%, more than the Food - Miscellaneous industry’s expected rise of 2.8%. Flowers Foods, Inc. FLO produces and markets bakery products in the United States. The company currently has a Zacks Rank #2 and a beta of 0.49. The company has a dividend yield of 3.2%, while its five-year average dividend yield is also pegged at 3.2%. The Zacks Consensus Estimate for its current-year earnings has moved 2% north in the last 60 days. The stock, which is part of the Food – Miscellaneous industry, is expected to notch solid earnings growth of 13% and 6.4% in the next quarter and current year, respectively. Will you retire a millionaire?
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