Recently released economic data have led to concerns that the American economy is cooling. A slowdown in new jobs creation and declining manufacturing activity appear to be the results of tariffs and prolonged trade war tensions. In such a scenario, it’s not surprising that the markets are anticipating Federal Reserve to cut rates.
According to Goldman Sachs GS, momentum stocks will register gains should the Fed decide to lower its rates this year. This is why it makes sense to pick up these stocks right now.
Fed Might Have Accommodative Monetary Policy
After increasing its benchmark interest rates four times in 2018, the Fed has repeatedly said this year that they will be patient in gauging the health of the economy. The current Fed rates are in the range of 2.25-2.5%.
But last week, Fed Chairman Jerome Powell said that the central bank is monitoring economic developments and "will act as appropriate to sustain the expansion." Fed Vice Chairman Richard Clarida also said on Jun 4 that the central bank will be willing to take action should the conditions change.
The Fed could be indicating a rate cut later this year. United States’ trade war with China and new import tariff threats to Mexico are affecting business confidence and manufacturing activity alike.
The Fed is unlikely to take any action regarding rates in its next meeting, which is scheduled for Jun 18-19. However,CME Group’s Fed Watch tool, which measures the probability of Fed moves, reveals a 90.8% probability of a September rate cut.
Goldman Sachs Recommends Momentum Trades
Amid growing optimism among investors of a rate cut in recent weeks, Goldman Sachs said that following investment themes such as momentum trades could be apt. This means that stocks in good shape at present would perform even better after a rate cut.
According to Goldman chief U.S. equity strategist David Kostin, an analysis of the past 35 years reveals that momentum trades have garnered a median 13% return in the 12 months following a rate cut. The study eliminates two exceptional rate cuts in 1998 and 2001.
Momentum investing also indicates that trends can persist for some time and one can profit by following the trend till it concludes. Therefore investing in momentum stocks at present, despite their steep prices and high valuations, could be profitable.
5 Stocks to Buy
We have chosen five momentum stocks that you could consider adding to your portfolio. These stocks carry a Zacks Rank #1 (Strong Buy) and Momentum Score of A.
Oasis Midstream Partners LP OMP provides crude oil, natural gas and water-related midstream services. Oasis Midstream’s Zacks Consensus Estimate has increased 19.5% over the last 30 days compared with the Zacks Oil and Gas – Production Pipeline – MLB industry’s estimate which has remained flat.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Safeguard Scientifics, Inc. SFE is a private equity and venture capital firm that specializes in expansion financings, growth capital, management buyouts, recapitalizations, industry consolidations, corporate spinouts, growth-stage and early-stage financings etc.
Safeguard Scientifics’ Zacks Consensus Estimate has increased 237% over the last 30 days compared with the Zacks Financial – SBIC & Commercial industry’s estimate which has remained flat.
Fly Leasing Limited FLY purchases and leases commercial aircraft. Fly Leasing’s Zacks Consensus Estimate has increased 12.6% over the last 30 days compared with the Zacks Transportation – Equipment and Leasing industry’s estimate which has remained flat.
Limbach Holdings, Inc. LMB provides commercial specialty contract services in the United States. Limbach’s Zacks Consensus Estimate has increased 35.7% over the last 30 days compared with the Zacks Building Products – Maintenance Service industry’s estimate which has remained flat.
StealthGas Inc. GASS provides seaborne transportation services to liquefied petroleum gas producers and users across the globe. StealthGas’s Zacks Consensus Estimate has increased 41.2% over the last 30 days compared with the Zacks Oil and Gas – Production Pipeline – MLB industry’s estimate which has increased 3%.
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Fly Leasing Limited (FLY) : Free Stock Analysis Report
StealthGas, Inc. (GASS) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Safeguard Scientifics, Inc. (SFE) : Free Stock Analysis Report
Limbach Holdings, Inc. (LMB) : Free Stock Analysis Report
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
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