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Wall Street Bulls Roaring Despite Slowdown Fears: 5 Top Picks

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The U.S. economy has slowed, corporate profits have dwindled due to the lingering tariff war with China and global economic downturn, and the government yield curve inversion in August spread fears of an impending recession. Yet, nothing could make investors lose their appetite for risky assets like equities. Year to date, the performance on Wall Street is projecting a glorious picture with no end to the bull run in sight, at least not this year.

Wall Street Still Raging Forward Despite Volatility

So far in 2019, Wall Street bulls are raging forward withstanding intermittent volatilities and fluctuations. We are in the ninth month of this year in which except for May and August, stock market returns were positive. Year to date, the three major stock indexes -- the Dow, the S&P 500 and Nasdaq Composite -- advanced 16.3%, 19.7% and 23.1%, respectively. By any means, this performance is fabulous after a disappointing 2018.

On Sep 11, the Dow surged 227.61 points or 0.9% to close at 27,137.04, marking its first six-day winning streak since June. Moreover, the blue-chip index posted its first closing above the psychological barrier of 27,000 for the first time since Jul 30 and is less than 1% away from its all-time high recorded on Jul 16.

Likewise, the S&P 500 climbed 0.7% to end at 3,000.93, reflecting the benchmark index’s highest close since late July. The broad-market index ended in the green in five out of the last six trading sessions and is just 0.8% behind its all-time high closing on Jul 26. The tech-laden Nasdaq Composite soared 1.1% to finish at 8,169.67, its best close since Jul 31.

In addition to the three major stock indexes, which generally track large-cap stocks, the small-cap specific Russell 2000 Index gained 2.1% on Sep 11 to close at 1,575.71, posting its 5-week high. So far this week, the index has jumped 4.6% and in the past month, it soared more than 5%, outperforming its large-cap peers.

Consequently, the small-cap index, with disappointing performance in the last few months, successfully returned above both the 50-day and 200-day moving averages. These two key technical parameters indicate both short-term support and long-term potential for the index. Aside from large-cap indexes, strong performance of the small-cap index is vital to sustain a broad-based rally.

Trade Tension Eases    

On Sep 11, China’s Ministry of Finance said in a statement on its website that it will exempt some U.S. products in the areas of Cancer drugs, lubricants, pesticides and shrimp meal from tariff for one year more. These products were scheduled to be under the new tariff effective next week.

On the other hand, President Donald Trump has tweeted that he will delay imposing 30% tariff replacing the existing 25% on $250 billion of Chinese goods from Oct 1 to Oct 15 as a “gesture of good will” after Chinese vice premier Liu He requested the same as “the People’s Republic of China will be celebrating their 70th Anniversary.”

As per POLITICO, China has expressed desire to increase imports of U.S. agricultural goods if the U.S. government eases business restrictions imposed on the Asian telecom behemoth Huawei Technologies and postpone escalation of tariff rate on $250 billion of Chinese goods effective Oct 1. Per the newspaper, the Trump administration is also evaluating the latest round of trade negotiations in order to consider delaying the imposition of 15% tariff on around $160 billion of Chinese goods effective Dec 15.

Fed Likely to Cut Rate Again

The market has assigned a high chance for the Fed to reduce the benchmark leading rate again in September after doing the same in July, for the first time in 11 years. Despite strong consumer spending, the U.S. manufacturing sector, which accounts for 12% of the GDP, is facing weakness due to the ongoing tariff war. Business confidence has declined and inflation remains muted.

All these negatives are likely to compel the Fed to cut rate again this month. At present, the CME FedWatch has assigned 88.8% probability of a 25 basis-point cut and 12% chance of a 50 basis-point rate cut. Respondents have also assigned 48.4% chance of a third rate cut of 25 basis points in October.

5 Momentum Stocks Flying High in Past One Month

We have narrowed down our search to five such stocks, which popped in the past one month and still have strong momentum. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (ZUMZ - Free Report) operates as a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment. The company operates under the names Zumiez, Blue Tomato and Fast Times.

The company has an expected earnings growth rate of 20.7% for the current year. The Zacks Consensus Estimate for the current year has improved 14.3% over the last 30 days. The stock jumped has 38.3% in the past month.

Genesco Inc. GCO is a specialty retailer, which sells footwear, headwear and accessories in retail stores in the United States and Canada. It operates through four segments: Journeys Group, Schuh Group, Johnston & Murphy Group, and Licensed Brands.

The company has an expected earnings growth rate of 22.3% for the current year. The Zacks Consensus Estimate for the current year has improved 9.3% over the last 30 days. The stock has jumped 21.5% in the past month.

Hilltop Holdings Inc. HTH specializes in banking, mortgage origination, financial advisory and insurance. It operates in four segments: Banking, Broker-Dealer, Mortgage Origination, and Insurance.

The company has an expected earnings growth rate of 50% for the current year. The Zacks Consensus Estimate for the current year has improved 2.7% over the last 30 days. The stock has soared 11.8% in the past month.

Bristol-Myers Squibb Co. BMY discovers, develops, licenses, manufactures, markets, distributes and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular and fibrotic diseases.

The company has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.9% over the last 30 days. The stock has surged 5.9% in the past month.

Surmodics Inc. SRDX is a leading provider of surface modification technologies in the areas of biocompatibility, site specific drug delivery, biological cell encapsulation, and medical diagnostics. It operates through two segments, Medical Device and In Vitro Diagnostics.

The company has an expected earnings growth rate of 40.8% for the current year. The Zacks Consensus Estimate for the current year has improved 40.5% over the last 30 days. The stock has gained 5.3% in the past month.

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