On Aug 13, one of the equity markets’ most closely watched indexes, the Dow, plunged. This marked the blue-chip index’s decline for four consecutive days. Recent stock market volatility stemmed from several geopolitical concerns, especially, the economic turmoil in Turkey and deterioration of diplomatic relations with the United States.
However, the recent downtrend in U.S. stocks can be considered transitory in nature. Meanwhile, a robust U.S. economy, strong labor market, solid earnings results along with government’s deregulation policies is likely to pave the way for further upside. At this stage, investment in some of these stocks with favorable Zacks Rank will bode well.
Meltdown a Temporary Phenomenon
On Aug 13, the Dow 30 plummeted 0.5% or 125.44 points. In the last four trading days, the index has lost 1.73%. However, a closer look at the index’s composition will give a different story. Despite recent downtrend, the index is up 1.9% year to date. Moreover, half of the total portfolio of 30 stocks in the Dow has provided positive returns so far this year.
Recent stock market meltdown is a temporary phenomenon as U.S. companies do not have significant exposure in Turkey. Strong U.S. economic fundamentals will help the blue-chip index to maintain momentum.
U.S. GDP for Second-Quarter Soars
U.S. GDP grew at 4.1% in the second-quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009.
In the second quarter, consumer spending, business investment and government spending increased 4%, 7.3% and 3.5%, respectively. Notably, first-quarter 2018 GDP growth rate was revised to 2.2% from 2% reported earlier.
Strong Labor Market
On Aug 3, the Labor Department reported that the U.S. non-firm job addition increased by 157,000 for the month of July. Unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years. Average hourly earnings increased by 0.3% to 2.7% over the same period a year ago, reducing investor’s fear of a hyper-inflation.
Robust Earnings Momentum
U.S. corporates have so far posted robust results for second-quarter 2018, maintaining the terrific earnings momentum which has begun since the first-quarter 2018. As of Aug 9, total earnings for the 452 S&P 500 members that have reported second-quarter results are up 25.5% on 10.2% higher revenues.
Notably, in the second-quarter, total earnings of S&P 500 companies are expected to be up 24.7% from the same period last year on 9.5% higher revenues. (Read More: Taking Stock of the Earnings Picture)
Stock markets momentum remained largely unhindered despite volatility. Massive tax cut, business-friendly policies and steady economic activities resulted in robust earnings results. U.S. markets are well positioned to attract investors’ attention by offering high yields.
At this stage, we narrowed down our search to five stocks within the Dow 30, each having either a Zacks Rank #1 (strong Buy) or 2 (Buy) and provided fabulous returns.
The chart below depicts price performance of our four picks year to date.
Microsoft Corp. MSFT: The stock provided 26.5% return year to date. Microsoft has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 30 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Apple Inc. AAPL: The stock provided 23.4% return year to date. Apple has expected earnings growth of 26.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days. The stock carries a Zacks Rank #2.
UnitedHealth Group Inc. UNH: The stock provided 18.4% return year to date. UnitedHealth has expected earnings growth of 26.3% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 30 days. The stock carries a Zacks Rank #2.
Intel Corp. INTC: The stock provided 5% return year to date. Intel has expected earnings growth of 19.4% for current year. The Zacks Consensus Estimate for the current year has improved by 3.5% over the last 30 days. The stock has a Zacks Rank #2.
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