According to the Stock Trader’s Almanac, stocks normally offer solid returns onthe Wednesday before Thanksgiving and the Friday after combined, albeit at a low volume. The Dow Jones Industrial Average has experienced only 16 losses in the past 66 years. However, the wining trend dwindled in the past two years as the Dow was down about 32 points and 180 points in 2017 and 2018 around Thanksgiving, respectively.
This makes us analyze, will the U.S. stock market continue the age-old wining trend this year too or not? Let’s find out.
Markets at All-Time High
Trade and Fed optimism have taken Wall Street to new highs several times this year.The S&P 500 breached the 3,100 level while the Dow Jones topped the 28,000 milestone. Stellar show by the tech and biotech stocks has made this uptrend possible. The S&P 500 is up 25% in 2019 and on its way to the largest one-year gain since 2013.
The forward rally from here depends largely on the news coming out on the U.S.-China trade front. Just before Thanksgiving, “U.S. President Donald Trump said the United States and China were close to agreeing on the first phase of a trade deal.”
Oil on Upbeat Mode
OPEC and Russia, or OPEC Plus, will meet in Vienna next week, and it is widely expected that the group will extend their output cut agreement to June or even the end of next year. The current agreement is in place till March 2020.
If this is not enough, talks of a trade deal by mid-December is pushing oil prices up. China’s latest move of raising penalties on Intellectual Property theft has also been acting as a tailwind to the potential trade talks.
Global Slowdown Seems to Be Passing By
Many strategists including Goldman Sachs are of the view that global growth slowdown is probably now a matter of the past. Goldman Sachs said that the growth rate in the United States is likely to be above consensus. The firm forecasts U.S. GDP rising at 2.3% in 2020 and global growth of 3.4%. Barclays Chief U.S. Equity Strategist believes that stronger industrial data and probability for lower recession paves the way for strong equity return in 2020 (read: Stocks Set for a Strong 2020? Top-Ranked ETFs to Pick).
The Fed’s three rate cuts and chances of no hike in the near term is a positive. “When the Fed eases during soft patches, equity markets rally significantly over the next year (20% on average),” per Barclays strategist.
ETF & Stock Picks
Against this backdrop, we bet big on a year-end rally. Investors are likely to see a solid bounce in equities this Thanksgiving and after.
ETF picks are all top ranked.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report) – Zacks Rank #1 (Strong Buy)
Vanguard Industrials ETF (VIS - Free Report) – Zacks Rank #1
SPDR S&P 400 Mid Cap Value ETF (MDYV - Free Report) – Zacks Rank #2 (Buy)
First Trust Financials Alphadex Fund (FXO - Free Report) – Zacks Rank #2
Stock picks are top-ranked with a Value score of A and P/E of less than 19 times.
Piper Jaffray Companies (PJC - Free Report) – P/E 13.08x, Rank #2
Shoe Carnival Inc. (SCVL - Free Report) – P/E 12.61x, Rank #1
Tenet Healthcare Corporation (THC - Free Report) – P/E 12.24x, Rank #2
Alaska Air Group Inc. (ALK - Free Report) – P/E 10.93x, Rank #2
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