After completing three impressive quarters of 2019, Wall Street started the final quarter with mixed performance. Despite continuation of volatile trading, both S&P 500 and the Nasdaq Composite Indexes are in positive territory month to date while the Dow is marginally in the red. Meanwhile, the benchmark S&P 500 Index is within a striking distance of another all-time high after July.
S&P 500 Index Northbound
On Oct 24, the S&P 500 Index --- generally utilized by market participants as the barometer of the broad market movement --- closed at 3,010.29. The index is just 0.5% below the all-time closing high of 3.025.86 that it reached on Jul 26, 2019 as well as to touch its all-time intraday high of 3,027.98 recorded on the same day.
Year to date, the broad-market index has rallied 20.1%, an impressive performance after a disappointing 2018, when it lost 6.6%. Moreover, the index is up 1.1% so far in October while it returned 1.5% in the past one month.
Three Possible Drivers of S&P 500 Index
First, per a Bloomberg report, on Oct 18, Chinese vice premier said, “China and the U.S. have made substantial progress in many aspects, and laid an important foundation for a phase one trade agreement.” On Oct 21, President Donald Trump said efforts to end a U.S. trade war with China were going well as the first phase of the trade deal is likely to be signed in the middle of next month. Per several financial experts and market watchers, even a temporary trade truce between the two largest trading nations of the world will be a huge relief for investors.
Second, on Oct 8, Fed Chairman Jerome Powell gave signals of a possible third rate cut this month. The FOMC is scheduled to meet on Oct 29-30. The central bank already reduced the benchmark lending interest rate by 50 basis points in two equal tranches in July and September. Rate cut happened for the first time in more than 11 years. Notably, as of Oct 24, the CME FedWatch assigned 93.5% probability of a 25 basis point rate cut in October while just 6.5% expects status quo to be maintained.
Third, third-quarter 2019 earnings so far are not as disappointing as expected initially. However, the forecast of overall earnings dip is still looming large. As of Oct 24, 169 S&P 500 members reported third-quarter results. Total earnings for these index members are up 0.2% from the same period last year on 4.2% higher revenues. Notably, 80.5% companies surpassed EPS estimates while 62.7% beat revenue estimates. (Read More: Is the Earnings Picture Good or Mixed?)
Our Top Picks
At this stage, it will be prudent to invest in all those S&P 500 stocks that surged in the past month and still have upside left. We have narrowed down our search to five such stocks, each carrying either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Vertex Pharmaceuticals Inc. (VRTX - Free Report) is focused on the discovery, development and commercialization of small molecule drugs targeting serious diseases. Its main area of focus is cystic fibrosis (CF). The company has an expected earnings growth rate of 42% for the next year. The Zacks Consensus Estimate for the next year has improved by 10% over the last 30 days. The Zacks Rank #1 stock has jumped 14.7% in the past month.
PulteGroup Inc. (PHM - Free Report) is engaged in homebuilding and financial services businesses, mainly in the United States. It conducts operations through two primary business segments –- Homebuilding and Financial Services. The company has an expected earnings growth rate of 9.4% for the next year. The Zacks Consensus Estimate for the next year has improved by 2.2% over the last 30 days. The Zacks Rank #1 stock has soared 13.4% in the past month.
Skyworks Solutions Inc. (SWKS - Free Report) designs, manufactures, and markets a broad range of high performance analog and mixed signal semiconductors that enable wireless connectivity. The company has an expected earnings growth rate of 0.4% for the next year. The Zacks Consensus Estimate for the next year has improved by 20.3% over the last 30 days. The Zacks Rank #2 stock has surged 11.6% in the past month.
Lennar Corp. (LEN - Free Report) is engaged in homebuilding and financial services in the United States. Its reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily. The company has an expected earnings growth rate of 9% for the next year. The Zacks Consensus Estimate for the next year has improved by 3.6% over the last 30 days. The Zacks Rank #2 stock has climbed 11.5% in the past month.
Kansas City Southern (KSU - Free Report) is a transportation holding company that has railroad investments in the United States, Mexico and Panama. The company has an expected earnings growth rate of 14.6% for the next year. The Zacks Consensus Estimate for the next year has improved by 3% over the last 30 days. The Zacks Rank #2 stock has gained 9.2% in the past month.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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