Wall Street completed a blockbuster first-quarter 2019, rebounding sharply from the rout it faced in the fourth quarter of 2018. The S&P 500 Index closed its best first-quarter performance since 1998 and best quarterly performance since the third quarter of 2009. The Dow recorded the biggest gain since first-quarter 2013 and Nasdaq Composite posted the best quarterly performance since 2012.
However, the first-quarter performance does not guarantee continued success. The partial inversion of the U.S. Treasury yield curve already created mayhem in stock market last week. There are other factors as well that can stir up severe volatility.
3 Risk-Bearing Factors
First, global economic slowdown and its contagion effect on the U.S. economy are major near-term concerns. The Fed lowered the U.S. GDP growth rate to 2.1% in 2019 from 2.3% projected in December. In China, the authority had pegged the country’s growth rate in the range of 6-6.5% for 2019, the lowest since 1990. The European Central Bank lowered the 2019 growth projection for Eurozone to 1.1% from its previous projection of 1.7%.
Second, expectations for first-quarter 2019 earnings are far from encouraging at present. Total earnings of S&P 500 Index are anticipated to be down 3.7% from the same period last year on 4.8% higher revenues. Current estimates indicate the first earnings decline since the second quarter of 2016. However, after a blockbuster first-quarter performance on the bourses, valuation is high for most of the stocks. So, weak earnings or guidance may result in market fluctuations.
Third, trade related problems between the United States and China are yet to be resolved despite significant progress in that direction. Moreover, geo-political issues like the prolonged Brexit conundrum can also dent investors’ confidence.
Wall Street at a Crossroads
The performance of Wall Street in the first quarter should strongly motive investors to opt for risky securities like equities. However, the ground reality is somewhat different. According to Bank of America, investors pulled $5.6 billion from stock funds in the first quarter of 2019, while investing a huge $94.2 billion in fixed-income funds. Charles Schwab reported that 44% of its active traders increased the cash portion of their portfolio in the past three months.
Notably, Wall Street witnessed partial inversion of the U.S. Treasury yield curve on Mar 22, which continued for seven trading days. The yield inversion between 3-month and 1-year government bonds happened for the first time since 2007. In fact, several economists consider inversion between the 3-month and 10-year bond yields as a clear indication of an upcoming recession. The market can again witness yield inversion if any of the three risky issues mentioned above heightens.
Our Top Picks
At this stage, it will be lucrative to invest in high-yielding stocks in order to ensure a steady income stream. We narrowed down our search to five such stocks with a Zacks Rank #1 (Strong Buy) and high-dividend yield. These stocks also have strong growth potential. 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.
Abercrombie & Fitch Co. ANF operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. It has a dividend yield of 2.92%. The company has expected earnings growth rate of 20.9% for the current year. The Zacks Consensus Estimate for the current year has improved 35% over the past 30 days.
Herman Miller Inc. MLHR is a major American manufacturer of office furniture, equipment and home furnishings. It has a dividend yield of 2.25%. The company has an expected earnings growth rate of 24.4% for the current year. The Zacks Consensus Estimate for the current year has improved 3.6% over the past 30 days.
Foot Locker Inc. FL is a leading global retailer of athletically inspired shoes and apparel. It has a dividend yield of 2.28%. The company has an expected earnings growth rate of 10.4% for the current year. The Zacks Consensus Estimate for the current year has improved 2.8% over the past 30 days.
Federated Investors Inc. FII is a leading provider of investment management and related financial services. It has a dividend yield of 2.95%. The company has expected earnings growth of 11.9% for the current year. The Zacks Consensus Estimate for the current year has improved 2.5% over the past 30 days.
Medifast Inc. MED manufactures and distributes weight loss, weight management, healthy living products, other consumable health and nutritional products. It has a dividend yield of 2.35%. The company has an expected earnings growth rate of 41.1% for the current year. The Zacks Consensus Estimate for the current year has improved 11.5% over the past 30 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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Federated Investors, Inc. (FII) : Free Stock Analysis Report
MEDIFAST INC (MED) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Herman Miller, Inc. (MLHR) : Free Stock Analysis Report
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