Wall Street had a dream run in 2019 wherein the benchmark S&P 500 and tech-heavy Nasdaq Composite Index recorded the highest gain since 2013 while the blue-chip index the Dow closed 2019 with its biggest yearly percentage gain since 2017. However, the stock markets retreated on Jan 3 after the U.S. airstrikes in Iran that killed its military general Qasem Soleimani.
Fearing an escalation in geopolitical conflict in the Middle East and possible retaliatory measures by Iran, Wall Street plummeted. Crude oil prices jumped and investors shifted to safe-haven assets like gold and government bonds.
However, the recent stock market pullback is a welcome development as it will help correcting higher stock valuation to some extent and consequently be a good entry point for risky assets like equities.
Recent Downturn May Be Temporary
Downturn in U.S. stock markets may continue for the next few weeks. Iranian state TV said Iran will no longer abide by uranium enrichment limits. However, a full-phased war such as the gulf war of 1980s and 1990s are unlikely to happen.
Following the escalation of U.S.-Tran conflict, both the Dow and the Nasdaq Composite retreated 0.8% while the S&P 500 declined 0.7%. These drops are negligible compared with these three index’s gain of 1.7%, 3.6% and 2.9%, respectively, in December.
Wall Street bull run likely to continue in this year buoyed by an expected interim trade deal between the United States and China, which will at least prevent further escalation of tariff war. A phase-one trade deal is likely to restore U.S. business confidence significantly which in turn will help the sagging manufacturing sector for a rebound. Moreover, U.S. exports, especially the technology and industrial products, will be bolstered once the global economy revives.
A stable U.S. economy is the biggest positive for U.S. stocks. The U.S. GDP growth is over 2% despite being its 126th month of expansion. Strong consumer spending, which constitutes 70% of GDP, a strong labor market, a historically low-level of unemployment steady growth in wage rate will bolster investors’ sentiments. Moreover, an accommodative Fed is likely to be a cushion for stock markets.
In 2019, the Dow and the S&P 500 crossed technically vital 28,000 and 3,000 levels for the first time and are currently firmly settled above those physiological barriers. Meanwhile, the Nasdaq Composite also crossed 9,000 for the first time in 2019 and currently hovering around that level.
Most importantly, all three major stock indexes are at present well above their respective 50-day and 200-day moving averages. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered a long-term trend setter.
Moreover, 50-day moving average of each of these stocks indexes is ahead of their respective 200-day averages. It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Our Top Picks
At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank. We have narrowed down our search to five growth stocks, with strong EPS estimate revision and future growth potential. Each of our picks carries either a Growth Score of A or B and 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 in the past year.
Copart Inc. (CPRT - Free Report) provides online auction and a wide range of remarketing services to process and sell salvage and clean title vehicles. This is done mainly over the Internet, through its Virtual Bidding Third Generation (VB3) Internet auction-style sales technology. 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 last 60 days.
Performance Food Group Co. (PFGC - Free Report) markets and distributes food and food-related products. Its operating segment consists of Foodservice, Vistar, and PFG Customized. The company has an expected earnings growth rate of 13.5% for the current year (ends June 2020). The Zacks Consensus Estimate for the current year has improved 4.5% over the last 60 days.
Cornerstone OnDemand Inc. (CSOD - Free Report) is a provider of a comprehensive learning and talent management solution delivered as software-as-a-service (SaaS) solutions. It offers five integrated platforms for learning management, enterprise social networking, performance management, succession planning and extended enterprise. The company has an expected earnings growth rate of 38.4% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 60 days.
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 the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the last 60 days.
SS&C Technologies Holdings Inc. (SSNC - Free Report) provides software products and software-enabled services to financial services and healthcare industries in the United States, Canada, and rest of the Americas, Europe, the Asia Pacific, and Japan. The company has an expected earnings growth rate of 9.1% for the current year. The Zacks Consensus Estimate for the current year has improved 0.2% over the last 60 days.
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