Wall Street seems to be carrying on from where it left off in 2019, with the bull run showing no signs of relenting despite the coronavirus outbreak. All three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — look unstoppable in their northbound movement. A stable U.S. economy, an accommodative Fed and better-than expected corporate earnings and guidance is only going to add fuel to the momentum.
Indexes Approaching Milestones
Despite short-term fluctuations on account of some geopolitical issues or the outbreak of coronavirus in China, all three major stock indexes achieved several fresh highs this year. In fact, the benchmark S&P 500 has recorded 14 highs so far this year.
On Fed 19, the S&P 500 — popularly recognized as stock market’s barometer — closed at a fresh high of 3,386.15. The index is 3.4% away from an important technical barrier of 3,500. Likewise, the tech-heavy Nasdaq Composite also posted a new closing high of 9,817.18. The tech-laden index just needs 1.9% more to cross the psychological barrier of 10,000. Meanwhile, the blue-chip 30 stocks Dow ended at 29,384.03 – just 0.6% behind its all-time high level recorded on Feb 12. Moreover, the Dow is 2.1% away from the crucial technical milestone of 30,000.
Notably, all three indexes are currently well above their 50-day and 200-day moving averages. In finance, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered for the long-term trend.
Further, 50-day moving averages are higher than 200-day for these indexes. 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.
Three Major Positives
First, the U.S. economy remains stable. Consumer confidence data for January and preliminary consumer sentiment data for February have jumped underscoring the fact that individuals are still optimistic about future growth prospects. Some business-centric data hinted on a possible bottoming out of the U.S. manufacturing.
Second, U.S. corporates have performed better-than expected in fourth-quarter 2019. Total earnings for the S&P 500 index are currently expected to be up 0.8% on 4.3% higher revenues year to date. This is a complete turnaround from earnings decline of 3.2% year over year on 3.5% higher revenues, projected at the beginning of the reporting cycle.
More importantly, despite the outbreak of the coronavirus, total earnings of the S&P 500 index for the ensuing first-quarter 2020, are now expected to be up 1% on 5% higher revenues year over year.
Third, an accommodative Fed and continuation of easy money policies have restored investor confidence on risky stock markets. The central bank’s assurance of doing whatever necessary to support U.S. economic expansion has boosted market participants’ optimism to a large extent.
Our Top Picks
At this stage, it will be prudent to invest in large-cap (market capital > $100 billion) stocks, which are member of any one or more indexes with a favorable Zacks Rank and strong growth potential. Large-cap companies are important due to their established business presence.
We have narrowed down our search to five such corporate behemoths that jumped more than 10% year to date and still have upside left. Each of our picks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Microsoft Corp. MSFT is one of the largest broad-based technology providers globally. Its offerings also include hardware and online services. Additionally, the company offers support services in the form of consultation, training and certification of system integrators and developers.
The company has an expected earnings growth rate of 18.7% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year has improved 5.2% over the past 30 days. The Zacks #1 Rank stock has appreciated 18.7% year to date.
Netflix Inc. NFLX is a provider of Internet TV (streaming services) and DVD-rental services. Subscribers, both domestic and international, can watch them on a host of internet-connected devices, including TV sets, computers and mobile devices. It operates in three segments: Domestic streaming, International streaming and Domestic DVD.
The company has an expected earnings growth rate of 46.7% for the current year. The Zacks Consensus Estimate for the current year has improved 11.2% over the past 30 days. The Zacks #2 Rank stock has rallied 19.3% year to date.
Adobe Inc. ADBE operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content.
The company has an expected earnings growth rate of 24.5% for the current year (ending November 2020). The Zacks Consensus Estimate for the current year has improved 0.1% over the past 30 days. The Zacks #2 Rank stock has climbed 16.2% year to date.
International Business Machines Corp. IBM provides advanced information technology solutions, including computer systems, software, storage systems and microelectronics. It operates in more than 175 countries.
The company has an expected earnings growth rate of 4.3% for the current year. The Zacks Consensus Estimate for the current year has improved 1.3% over the last 30 days. The Zacks #2 Rank stock has advanced 12.5% year to date.
Apple Inc. AAPL designs, manufactures and sells iPhone, iPad, iPod, Apple TV, Mac personal computers, Apple Watch, HomePod and AirPods. These devices are powered by iOS, macOS, watchOS and tvOS operating systems.
The company has an expected earnings growth rate of 15.9% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 4.7% over the last 30 days. The Zacks #2 Rank stock has gained 10.2% year to date.
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