Wall Street is suffering from severe volatility throughout August. Worsening trade conflict between the United States and China, fear of an impending recession in the United States owing to frequent inversion of sovereign yield curve and global economic slowdown especially in China and Germany, significantly dented investors’ confidence in equities. Market is likely to remain unstable in the near term due to the above-mentioned factors.
Wall Street Facing Severe Volatility
U.S. stocks are facing regular fluctuations in August after a rally in the previous two months. So far in August, the three major stock indexes -- the Dow, the S&P 500 and the Nasdaq Composite -- have lost 3.5%, 3.4% and 3.9%, respectively. All four indexes registered weekly loss in the previous four consecutive weeks.
Moreover, in August, the Dow posted five daily declines of 1% or more, the S&P 500 witnessed four daily losses of more than 1% and the Nasdaq Composite has fallen at least 1% six times.
Meanwhile, the bond market is giving strong signal of an impending U.S. recession since the mid of this month. Yields on 2-year and 10-year U.S. Treasury Notes inverted on Aug 14, for the first time since December 2005. Thereafter, this 2-10 year yield inversion took place at least five times this month, though for a brief period of time.
Globally Weak Economic Data
On Aug 22, the IHS Markit reported that the U.S. manufacturing index for the month of August plunged to its 10 year-old low level at 49.9 from 50.4 in July. Notably, a reading below 50 means U.S. manufacturing contracted in August. Likewise, the services sector index plummeted to 50.9 in August from 53.0 in July, marking a 3-month low.
On Aug 26, the Department of Commerce reported that U.S. durable goods orders for the month of July increased by a healthy 2.1%. However, the core durable goods orders (excluding defense products and aircraft) ---- a major proxy for business investment plan ---- grew a mere 0.4%, indicating slowing capex trend.
Germany, the fourth-largest economy in the world, witnessed a 0.1% contraction in its second-quarter 2019 GDP, the first time since the third quarter of 2018. Industrial output in July also declined 5% year over year. The German Ifo Institute reported that business sentiment in July came in at a reading of 94.3, the lowest level since November 2012.
The GDP off the Eurozone economy as a whole declined to 0.2% in the second quarter compared with 0.4% in the first. Meanwhile, second-quarter 2019 GDP of the U.K. contracted 0.2%, for the first time since late 2012. The manufacturing sector declined 2.3% in the second quarter, marking its biggest quarterly fall since the first quarter of 2009.
In China, industrial output grew 4.8% in July, marking its lowest growth in more than 17 years. Retail sales in China were up 7.6% in July, reflecting the second-lowest rate of growth since 2003.
Rate Cuts and Injection of Stimulus
Several major central banks have adopted interest rate cut and injection of stimulus within the economy to cope with an impending global economic slowdown.
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 strategy will be part of the People’s Bank of China’s broader market reform to lower interest rates further.
On Aug 7, the central banks of three major emerging markets ---- India, New Zealand and Thailand ---- unexpectedly cut interest rates to combat more aggressively against an impending global recession. Recently, the government of India injected huge stimulus to streamline its GDP growth rate.
Moreover, the European Central Bank and Bank of Japan are looking for options for a further rate cut despite the fact that both Eurozone and Japan are currently having negative interest rate. On Jun 4, the Reserve Bank of Australia cut benchmark interest rate by 25 basis points to a historic low of 1.25%.
In the United States, the Federal Reserve reduced the benchmark lending rate by 25 basis points to the range of 2-2.25%, for the first time since December 2008. The Fed Chair recently reiterated that the central bank will do in the future whatever is needed to maintain U.S. economic expansion, which is currently at the historically longest 11th year.
Our Top Picks
At this juncture, stocks with high-dividend yield and strong growth potential will be attractive. Regular dividend will ensure a steady income stream. We have narrowed down our search to five such stocks each carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Moreover, all five stocks are currently priced below $15, making them affordable to general investors.
The chart below shows price performance of our five picks in the past month.
Arbor Realty Trust Inc. (ABR - Free Report) invests in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets. The company operates in two segments --- Structured Business and Agency Business.
The company has expected earnings growth of 10% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.3% over the last 30 days. The stock has a dividend yield of 9.3%.
Donegal Group Inc. (DGICA - Free Report) is an insurance holding company, which provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England and southern states.
The company has expected earnings growth of 180% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.3% over the last 30 days. The stock has a dividend yield of 4.2%.
Navient Corp. (NAVI - Free Report) provides education loan management and business processing solutions for education, healthcare, and government clients at the federal, state, and local levels in the United States. It operates in three segments: Federal Education Loans, Consumer Lending and Business Processing.
The company has expected earnings growth of 17.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.5% over the last 30 days. The stock has a dividend yield of 5.1%.
TiVo Corp. (TIVO - Free Report) provides media and entertainment products for the consumer entertainment industry worldwide. It operates in two segments, Product and Intellectual Property Licensing.
The company has expected earnings growth of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.2% over the last 30 days. The stock has a dividend yield of 4.2%.
Maxar Technologies Inc. (MAXR - Free Report) provides space technology solutions for commercial and government customers worldwide. The company operates through three segments: Space Systems, Imagery and Services.
The company has expected earnings growth of 48.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 29.4% over the last 30 days. The stock has a dividend yield of 0.6%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>