U.S. stocks are, undoubtedly, selling off sharply as worries mounted over the spread of the deadly coronavirus. Major bourses in Europe and Asia have opened 1% lower across the board, and have seen some of the steepest decline so far this year. Talking about the U.S. stock market, worries about the spread of China’s coronavirus has dragged the Dow below its coveted 29,000 mark that the blue-chip index surpassed for the first time this month. In fact, the blue-chip index and the broader S&P 500 ended last week in the red, thereby snapping a two-week winning streak.
Major U.S. benchmarks pulled back after the Centers for Disease Control and Prevention confirmed that the death toll in China mounted to 80, and those infected neared 3,000. What’s more, questions are now being raised over the effectiveness of the confinement on cities like Wuhan, which is considered to be the epicenter of the virus.
The virus has certainly raised an alarm, quite similar to SARS (severe acute respiratory syndrome). Lest we forget, SARS, which erupted in 2002, resulted in the death of 800 and triggered a severe economic slump that fettered global stocks.
With so many people affected during the Lunar New Year holiday, travel-related stocks were hit hard. After all, market pundits fear possible contagion, as hundreds of millions of passengers traveled during the holiday season. By the way, manufacturers of luxury items also felt the heat. After all, such companies rely heavily on outlays by Chinese tourists.
But it’s just not the coronavirus outbreak that’s triggering a stock market pullback. Extreme bullish sentiments are leading to overbought conditions, leaving the stock market vulnerable. Per the Investors Intelligence survey, currently, percentage of respondents with a bullish view increased to 59.4% on the back of a trade truce and heathy domestic economic scenario.
And how can we forget that the United States, for most part of next year, will face political uncertainty, eventually leading to gyrations in the stock market. But, it’s not just political risks that should bother investors. Rapid increase in government borrowing along with threat of more taxes and stringent regulations may jeopardize the U.S. stock market performance.
The U.S. tech sector, in the meantime, has helped the broader U.S. stock market climb north since the 2008 financial crisis and significantly outdo all other major equity markets. Thanks to FAANG stocks and their adaptation of technologies, including AI and cloud computing, the tech sector has gained. But now, FAANG stocks are facing increasing threat of regulation, leading us to believe that such stocks may not perform well in the near future. And with it, the broader stock market may underperform.
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With the markets witnessing a major pullback, investing in stocks that provide excellent risk-adjusted returns seems judicious. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
These stocks are also dividend payers which boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better-quality business. Further, they boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Ares Capital Corporation (ARCC - Free Report) is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. The company has a Zacks Rank #2 and a beta of 0.58. The company has a dividend yield of 8.5%, while its five-year average dividend yield is 9.4%. The company’s expected earnings growth rate for the current year is 13.1%.
Booz Allen Hamilton Holding Corporation (BAH - Free Report) provides management and technology consulting, engineering, analytics, digital, mission operations, and cyber solutions to governments, corporations, and not-for-profit organizations. The company has a Zacks Rank #2 and a beta of 0.87. The company has a dividend yield of 1.4%, while its five-year average dividend yield is 1.8%. The company’s expected earnings growth rate for the current year is 13.4%.
Campbell Soup Company (CPB - Free Report) manufactures and markets food and beverage products. It operates through Meals & Beverages and Snacks segments. The company has a Zacks Rank #2 and a beta of 0.43. The company has a dividend yield of 2.9%, while its five-year average dividend yield is also 2.9%. The company’s expected earnings growth rate for the current year is 10%.
DHT Holdings, Inc. (DHT - Free Report) owns and operates crude oil tankers. The company has a Zacks Rank #1 and a beta of 0.58. The company has a dividend yield of nearly 3%, while its five-year average dividend yield is 6.3%. The company’s expected earnings growth rate for the current year is more than 100%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Buckle, Inc. (BKE - Free Report) operates as a retailer of casual apparel, footwear, and accessories for young men and women. The company has a Zacks Rank #1 and a beta of 0.81. The company has a dividend yield of 4.7%, while its five-year average dividend yield is 4.2%. The company’s expected earnings growth rate for the current year is 4.6%.
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