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S&P 500 Set to Record Highest Return Since 1997: 5 Picks

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The impressive turnaround by Wall Street in 2019, after the market mayhem of 2018, is set to reach a milestone at the end of this year. Buoyed by a likely interim trade deal with China in early January, solid economic data and a dovish Fed, the S&P 500 Index is set to return the highest since 1997. The benchmark index is recording fresh highs almost regularly in December.   

S&P 500 on the Verge of Touching a Milestone

On Dec 27, the S&P 500 Index achieved a new record high after closing at 3,240.02. Year to date, the broad-market index has rallied almost 29.3%. It is currently at a striking distance to surpass its annual return of 29.6% posted in 2013. Notably, so far, 2013 marked the best annual return for the S&P 500 Index since 1997, when it jumped a little more than 31%.

At this stage, the possibility of the S&P 500 Index crossing 29.6% returns this year is highly likely as two more trading days are still left. Moreover, this is the period of so-called Santa rally, consisting of the last five trading days of one year and first two trading days of the next year. Historically, the benchmark index has returned 1.3% during Santa rally.

Moreover, the S&P 500 Index is now firmly above its psychological barrier of the 3,000 mark. The index touched 3,000 for the first time on Jul 10 and its first closing above 3,000 was recorded on Jul 12. This means that the index rallied around 8% in past five and half months. This performance is in sharp contrast with 2018 when the index plunged 6.24% for the year as a whole. The S&P 500 ended 2018 at 2,506.85 and the 3,000 mark was nowhere near sight.

Will S&P 500’s Bull Run Continue?

The three positive factors mentioned in the first paragraph are the major catalysts for the index. As per a recent CNBC survey, analysts are projecting an average 3,320 for the S&P Index by the end of 2020. Notably, 2020 will be the year of presidential elections. Historically, the index provided 6.3% annual returns in presidential election years and was up 78% of the time.

The biggest driver for the S&P 500’s rebound in 2019 is the technology sector, which has skyrocketed 48.3% year to date, well above the index’s gain of 29.3%. A trade deal with China will benefit the technology sector the most. China is the largest market for the high-tech products of U.S. companies.

At the same time, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries. Moreover, clinching an agreement with China, which will strictly protect U.S. intellectual properties, will be immensely beneficial for the homegrown tech behemoths.

According to Mastercard SpendingPulse, retail sales in the United States from Nov 1 to Dec 24 of 2019 rose 3.4% year over year. This indicates strong spending by Americans, which constitute 70% of the country’s GDP. Moreover, a turnaround in the U.S. housing market and a likely bottoming out of the weakness in the U.S. business spending are the other positives.

Additionally, a dovish Fed which has decided to maintain a stable monetary stance after reducing the benchmark interest rate by 75 basis points in the second half of 2019, influenced the S&P 500’s record rally. Inflation stayed at 1.6%, well below the centrals bank’s targeted rate of 2%.

Our Top Picks  

At this stage, it will be prudent to invest in the S&P 500 stocks that popped in 2019 and still have strong upside left. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

 

Fortinet Inc. (FTNT - Free Report) is a provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide. The company has an expected earnings growth rate of 12.4% for next year. The Zacks Consensus Estimate for next year has improved 11.5% over the past 60 days. The stock has advanced 52.6% year to date.

Martin Marietta Materials Inc. (MLM - Free Report) is a natural resource-based building materials company, supplies aggregates and heavy building materials to the construction industry in the United States and internationally. The company has an expected earnings growth rate of 17.5% for next year. The Zacks Consensus Estimate for next year has improved 2% over the past 60 days. The stock has surged 62.2% year to date.

Synopsys Inc. (SNPS - Free Report) is a vendor of electronic design automation software to the semiconductor and electronics industries. The company has an expected earnings growth rate of 14.5% for the current year (ends October 2020). The Zacks Consensus Estimate for the current year has improved 5.4% over the past 60 days. The stock has soared 66.9% year to date.

Applied Materials Inc. (AMAT - Free Report) provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The company has an expected earnings growth rate of 24% for the current year (ends October 2020). The Zacks Consensus Estimate for the current year has improved 14.6% over the past 60 days. The stock has jumped 86.8% year to date.

Copart Inc. (CPRT - Free Report) provides online auction and a wide range of remarketing services to process and sell salvage and clean title vehicles. The company has an expected earnings growth rate of 23.1% for the current year (ends July 2020). The Zacks Consensus Estimate for the current year has improved 5.7% over the past 60 days. The stock has rallied 90.1% year to date.

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?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>