After the stock market rout in May, Wall Street rebounded significantly in June. All the three major stock indexes have recorded impressive gains so far this month. The Dow is poised for its best-ever June performance since 1938 while the S&P 500 could have its strongest June since 1955. The tech-heavy Nasdaq Composite is heading for its biggest jump in June since 2000.
Overall, the first half of 2019 is turning out to be highly fruitful for investors, a complete turnaround from a pathetic performance by Wall Street in the second half of 2018. However, the first-half performance does not guarantee continued success. Lingering trade conflict between the United States and China, concerns about U.S. as well as global economic slowdown, and Fed’s decision on interest rate can stir up severe volatility.
Wall Street at a Crossroads
The performance of Wall Street in the first half of 2019 should strongly motivate investors to opt for risky securities like equities. However, the ground reality is somewhat different. For the last couple of months, the bond market is giving signals that rough roads lay ahead as yields on U.S. sovereign bonds declined to a great extent.
On Jun 24, Wall Street suffered double setbacks, as Fed said a rate cut in July cannot be taken for granted. It will depend upon more economic data. Investors were expecting 100% probability of a rate cut next month. Moreover, U.S. officials have expressed little hope about the meeting between President Trump and Xi Jinping later this week.
Most of the investors were of the opinion that if the meeting between the two presidents remains fruitless, then it will affect both U.S. and global economy forcing the Fed to opt for one or two rate cuts this year. However, if the Fed pursues a wait-and-see policy for a long time, the market may witness severe volatility.
Tepid Global Economic Data
In the United States, non-farm job addition in May came in at just 75,000. Moreover, total job addition in April and March was reduced by 75,000. U.S. manufacturing is suffering due to lack of global demand. The ISM Manufacturing Index for May came in at 52.1, the lowest level since October 2016.
On Jun 25, the Conference Board reported that U.S. Consumer Confidence plunged to 121.5 in June from a revised reading of 131.1 in May. Notably, June’s reading was the lowest since September 2017. Future expectations index (which shows consumer’s thinking about the economy for next six months) declined to a five-month low of 94.1 in June from 105 in May.
Meanwhile, the Department of Commerce reported that new home sales in May came in at 626,000, down 7.8% sequentially and marking its lowest level in five months.
China’s official manufacturing PMI for May slipped to 49.4, from April’s reading of 50.1. PMI readings below 50 signal contraction in the Chinese manufacturing sector. The National Bureau of Statistics of China reported that value-added industrial output rose 5.0% in May compared with 5.4% in April. This was the lowest growth rate in 17 years.
The Ifo business-climate index for Germany fell to 97.4 points in June, the lowest level since November 2014. The reading for May was 97.9. Companies' expectations index fell to 94.2 points in June from 95.2 points in May.
Our Top Picks
At this stage, it will be lucrative to invest in high-yielding stocks for a steady income stream. The recent concerns about global economic slowdown and temporary yield curve inversion have not stalled the market’s growth.
We have been able to narrow down our search on five stocks, which have moved higher in the first half and still have upside left. Each of our picks sports 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.
P. H. Glatfelter Co. GLT is a global supplier of specialty papers and engineered materials. It has a dividend yield of 3.34%. The company has expected earnings growth rate of 242.9% for the current year. The Zacks Consensus Estimate for the current year has improved 2.9% over the past 60 days. The stock has surged 63.1% year to date.
Legg Mason Inc. LM provides investment management and related services to company-sponsored mutual funds and other investment vehicles. It has a dividend yield of 3.71%. The company has expected earnings growth rate of 963.2% for the current year. The Zacks Consensus Estimate for the current year has improved 5.5% over the past 60 days. The stock has surged 41% year to date.
Oasis Midstream Partners LP OMP provides crude oil, natural gas, and water-related midstream services in North America. It has a dividend yield of 9.17%. The company has expected earnings growth rate of 79.1% for the current year. The Zacks Consensus Estimate for the current year has improved 6.9% over the past 60 days. The stock has surged 27.9% year to date.
Rio Tinto Group RIO engages in finding, mining, and processing mineral resources worldwide. It has a dividend yield of 5.91%. The company has expected earnings growth rate of 36.9% for the current year. The Zacks Consensus Estimate for the current year has improved 3.1% over the past 60 days. The stock has surged 25.8% year to date.
NorthWestern Corp. NWE provides electricity and natural gas to residential, commercial and industrial clients. It has a dividend yield of 3.15%. The company has expected earnings growth rate of 5.9% for the current year. The Zacks Consensus Estimate for the current year has improved 6.2% over the past 60 days. The stock has surged 22.6% year to date.
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