On Aug 19, stock markets across the world rallied following news of a new series of stimulus likely to be injected by several large economies. As of now, investors are highly concerned about an impending global economic slowdown particularly due to the trade-related conflict between the United States and China, and a sharp manufacturing sector downturn in the Eurozone. Several geopolitical issues like Brexit, and the Iran and Hong Kong unrests worsened the situation.
However, yesterday, Wall Street rallied for the third consecutive day. In these three days, major stock indexes -- the Dow, the S&P 500 and the Nasdaq Composite -- climbed 2.6%, 2.9% and 3%, respectively. On Aug 19, China’s CSI 300 Index gained 2.1%, pan-European Stoxx Europe 600 rose 1.1%, Japan’s Nikkei 225 grew 0.7% and Hong Kong’s Hang Seng Index advanced 2.2%.
China to Reform Interest Rates
On Aug 17, the People’s Bank of China, the country’s central bank, unveiled a new mechanism to improve establishment of the loan prime rate (LPR) from this month. The new LPR quotations will be based on rates of open market operations, which the national interbank funding center will establish on the 20th day of every month. The new strategy will be part of the People’s Bank of China’s broader market reforms to lower interest rates further.
Germany and ECB to Inject Stimulus
On Aug 18, German Finance Minister Olaf Scholz said that the government is expected to inject $55 billion in the economy if the situation worsens. Notably, Germany’s GDP contracted 0.1% in the second quarter of 2019, signaling a possible recession in the near term.
The highly export-oriented German economy is suffering China, one of its prime customers, has cut its imports due to its trade tussle with the United States. This has resulted in a slowdown in domestic manufacturing, which is the major contributor to the country’s GDP.
The European Central Bank (ECB), in its last meeting at Frankfurt on Jul 25, gave hints of a new set of stimulus in September. The ECB president Mario Draghi reiterated that the main refinancing rate at zero and the deposit rate at minus 0.4% will remain either stable or could be lowered at least up to the first half of 2020. More stimulus is likely to be provided in September in order to boost the Eurozone inflation rate, which stood at a mere 1% in July.
U.S. May Follow Suit, Fed in Focus
On Aug 18, in an interview with the Fox News Network, U.S. economic adviser Larry Kudlow said that the Trump administration is looking at its mid-term election promise of reducing income tax by 10% middle-income earners. Moreover, the U.S. government is also considering a proposal by Senetor Rick Scott for additional tax cut to offset the negative impact of tariffs on Chinese goods.
Importantly, market participants are waiting for Fed Chair Jerome Powell’s upcoming lecture scheduled on Aug 23 at the central bank’s economic policy symposium in Jackson Hole, WY, to get a feeling of the central banks’ attitude about a second rate cut in September.
Notably, the Fed reduced the benchmark lending rate by 25 basis points in July for the first time in more than a decade. However, market participants are looking for more cuts as the situation worsened in August. Per CME FedWatch, as of Aug 19, 95% of respondents expected a rate cut of 25 basis points while 5% forecast a rate cut of 50 basis points in September.
Our Top Picks
The U.S. economy is likely to maintain its long-term growth albeit at a slow pace. Several stimulus measures across the globe will also help the U.S. economy to remain stable. At this stage, investment in stocks with strong growth potential will be lucrative. Our selection is backed by a Growth Score of A and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Delta Air Lines Inc. (DAL - Free Report) provides scheduled air transportation for passengers and cargo in the United States and internationally. It operates through two segments, Airline and Refinery. The company has an expected earnings growth rate of 24.8% for the current year. The Zacks Consensus Estimate for the current year has improved 0.6% over the last 30 days. The stock has gained 6.1% in the past three months.
Clean Harbors Inc. (CLH - Free Report) provides environmental, energy, and industrial services in North America. It operates through two segments, Environmental Services and Safety-Kleen. The company has an expected earnings growth rate of 54% for the current year. The Zacks Consensus Estimate for the current year has improved 5.4% over the last 30 days. The stock has surged 11.4% in the past three months.
Skyline Champion Corp. (SKY - Free Report) operates as a factory-built housing company in North America. It offers manufactured and modular homes, park-models and modular buildings for the multi-family, hospitality and workforce housing sectors. The company has an expected earnings growth rate of 24% for the current year. The Zacks Consensus Estimate for the current year has improved 8.4% over the last 30 days. The stock has jumped 39.1% in the past three months.
Crocs Inc. (CROX - Free Report) designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women, and children worldwide. The company has an expected earnings growth rate of 62.8% for the current year. The Zacks Consensus Estimate for the current year has improved 12% over the last 30 days. The stock has gained 6.6% in the past three months.
FTI Consulting Inc. (FCN - Free Report) provides business advisory services to manage change, mitigate risk, and resolve disputes worldwide. The company has an expected earnings growth rate of 35.5% for the current year. The Zacks Consensus Estimate for the current year has improved 23.5% over the last 30 days. The stock has jumped 29.9% in the past three months.
Legalizing THIS Could Be Even Bigger than Marijuana
Americans spend an estimated $150 billion in this industry every year… more than twice as much as they spend on marijuana.
Now that 8 states have fully-legalized it (with several more states following close behind), Zacks has identified 5 stocks that could soar in response to the powerful demand. One industry insider described the future as “mind-blowing” – and early investors can still get in ahead of the surge.
See these 5 “sin stocks” now >>