Wall Street has had an impressive run in 2019, with all major market indexes racking up handsome returns year to date. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite have struck new highs on a record number of occasions and look to be on course to finish the year on a strong note.
While equities tumbled early this month on news that President Donald Trump is expected to delay any U.S.-China trade deal until after the 2020 presidential elections and weak U.S. manufacturing numbers, blockbuster U.S. job data in the form of a robust November's non-farm payrolls report provided a thrust to the stock markets.
Moreover, U.S. indexes soared last Thursday with all three rocketing to record highs on news that Washington and Beijing are closing in on an initial trade deal. A decisive electoral win for British prime minister Boris Johnson in the U.K. general elections also triggered the rally. The victory clears the path for Brexit.
Indexes further cruised last Friday to fresh highs after the United States and China agreed to a phase one trade deal after months of negotiation on its terms. The deal averted the implementation of a new round of U.S. tariffs on around $160 billion of consumer goods from China including popular consumer products like smartphones, which were slated to kick in on Dec 15. China has also reportedly suspended its additional tariffs on U.S. goods that were supposed to take effect that same day.
Moreover, the United States will also slash its 15% tariff on about $120 billion of Chinese imports to 7.5%, the U.S. Trade Representative, Robert Lighthizer said on Friday. However, the existing 25% tariff will remain in place on about $250 billion worth of goods from China. The deal, which is expected to be signed in early January, also includes China’s commitment to purchase a significant amount of U.S. farm, energy and manufactured goods.
President Trump also said that the parties will start negotiation on the “Phase Two” deal immediately rather than waiting until after the 2020 elections. After an initial rally on the news of the deal, major indexes pared early gains due to lack of clarity on details.
The partial trade deal and more certainty surrounding Brexit post U.K. election results removes, at least for now, two major stumbling blocks that have largely constrained the global economy this year.
After a Spooky 2018, Indexes Look Set for a Strong Finish
The Dow Jones, which touched an intraday all-time high of 28,290.73 last Friday, has rallied around 21% year to date (as of Dec 13). The index has set multiple record closes so far this year.
The S&P 500 has also shined this year after a gloomy 2018, in which, it lost around 6%. The benchmark scaled a record high of 3,168.80 at closing on Dec 13. The S&P 500, which has gained from better-than-expected corporate earnings, optimism on the trade front and the U.S. Federal Reserve’s dovish approach this year, is now up roughly 26% this year.
Meanwhile, the tech-heavy Nasdaq Composite Index is also up 31% for the year. The index touched an all-time high of 8,734.88 at closing last Friday.
This is a remarkable performance after the roller-coaster ride in 2018 when all three indexes finished in the negative territory, partly triggered by widespread concerns of an economic slowdown.
U.S. Economy on Firm Footing
The U.S. economy has shrugged off recession fears and remains fundamentally stable. With rising consumer confidence, gradual wage growth and unemployment level at five-decade lows, the economy looks well set for 2020 and so do the stock markets.
Moreover, investors were cheered by the U.S. Federal Reserve's three interest rate cuts this year in a bid to protect the American economy amid the hot-and-cold U.S.-China trade war and global slowdown.
The Fed cut its benchmark rates for the third time in 2019 in October. The Federal Open Market Committee lowered the benchmark fund rate by 25 basis points to 1.5-1.75%. As widely expected by investors, the central bank kept interest rates unchanged in its December monetary policy meeting and signalled that it would leave rates on hold through next year. The Fed’s move augurs well for consumer confidence and expansion of economic activities in 2020.
A resilient American economy and a dovish Fed have been the key drivers of Wall Street this year. With economic data including employment surprisingly strong of late, the stock market rally will likely continue into the next year.
Trade Deal Augurs Well for World Economy, Equity Markets
Uncertainties surrounding the U.S.-China trade tiff, concerns over slowing global economic growth, the Brexit impasse and other geopolitical concerns hurt the market on several occasions in 2019 and dragged down stocks across an array of industries.
The Trump administration’s protectionist policies and bitter tariff war with China have largely contributed to the slowdown in the world economy. The trade war has led to a slowdown in global manufacturing activity. Trade frictions have also caused a slowdown in growth in China and Europe, and negatively impacted the automotive, technology, materials and industrial sectors.
The completion of the phase one deal should improve business sentiments and is expected to serve as a fundamental catalyst for global markets moving into 2020. The deal is expected to nudge the equity markets higher and would better place the global economy for growth next year.
The deal removes a major overhang for investors and should allow them to breathe a bit easier going forward. It should also usher in a better business environment for American companies and spur economic growth.
5 Beaten-Down Stocks Likely to Make a Comeback in 2020
The prolonged trade tiff and macro-economic headwinds have dragged down several stocks in 2019. However, with a favorable job scenario and high consumer sentiment underscoring a fundamentally sound U.S. economy, the momentum in the equity markets is expected to stay on firm-footing next year. As such, stocks that failed to stand out in 2019 have a chance to outperform in 2020.
However, finding stocks that are likely to rebound in 2020 can be a daunting task.
Here, Zacks’ proprietary methodology comes in handy. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here we pick five stocks with a market capitalization of more than $1 billion that have lost more than 20% so far in 2019, but have the potential to turn around this year based on their strong fundamentals.
Baidu, Inc. (BIDU - Free Report) : This China-based Internet search services provider sports a Zacks Rank #1 and has an expected earnings growth of 51.3% for the next year. Over 60 days, the company has seen the Zacks Consensus Estimate for 2020 increase 41.5%. We note that the stock has tumbled 24.9% so far this year.
Alkermes plc (ALKS - Free Report) : Ireland-based Alkermes is a biopharmaceutical company that utilizes proprietary technologies to research, develop and commercialize pharmaceutical products. Shares of this Zacks Rank #1 stock have lost 29.3% year to date. The company has an expected earnings growth of 12.6% for the next year. Over 60 days, it has seen the Zacks Consensus Estimate for 2020 shoot up 636.4%.
Commvault Systems, Inc. (CVLT - Free Report) : This New Jersey-based company is a leading provider of data protection and information management software applications and related services. The company, carrying a Zacks Rank #1, has an expected earnings growth of 14.7% for the next year. Over 60 days, the company has seen the Zacks Consensus Estimate for the next year increase 7.2%. Notably, the stock has lost 22.8% so far this year.
Veoneer, Inc. (VNE - Free Report) : This Sweden-based manufacturer of automotive safety products has seen its shares plunge 32.1% year to date. The company, carrying a Zacks Rank #2, has an expected earnings growth of 23.6% for 2020. Over 60 days, the company has seen the Zacks Consensus Estimate for 2020 increase 4.2%.
Zuora, Inc. (ZUO - Free Report) : California-based Zuora provides cloud-based software on a subscription basis. The company, carrying a Zacks Rank #2, has an expected earnings growth of 45.8% for the next year. Over 60 days, the company has seen the Zacks Consensus Estimate for the next year increase 9.5%. We note that the stock has lost 21.8% so far this year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
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