Wall Street closed in the red on Sep 16 owing to a drone attack on the two most precious oil fields of Saudi Arabia on Sep 14, resulting in an immediate drop of around 5% in global crude oil supply per day. Consequently, oil prices skyrocketed, intensifying concerns of further worsening of the global economy.
Crude Prices Skyrocket
On Sep 16, the global benchmark Brent crude futures price surged 19.5% to $71.95 per barrel at the open, marking its all-time biggest jump. However, Brent closed the day at $69.02 or up 14.6%. Likewise, the U.S. benchmark West Texas Intermediate (WTI) futures soared 15.5% to $63.34 per barrel at opening, reflecting its largest jump since December 2008. Finally, WTI finished at $62.90, up 14.8%.
A massive hike in crude oil prices is likely to dampen global economic growth, especially in the emerging markets. A large amount of import bill of the majority of these countries consists of crude oil. A higher import bill will put pressure on the countries’ exchequer and result in cost-push inflation.
Safe-Haven Assets Gain
Concerns about intensifying global economic slowdown compelled investors to shift to several safe-haven instruments instead of investing in risky equities. On Sep 16, price of December gold futures in Comex gained $12 or 0.8% to settle at $1,511.50 per ounce, the highest daily gain since Sep 6. Notably, gold lost 1.1% in the previous week. In addition to gold, silver surged 2.6%.
The yield on the benchmark 10-year U.S. Treasury Note declined 5.8 basis points to 1.843%, marking its biggest daily drop in three weeks. Likewise, yields on 2-year and 30-year noted dropped 3.6 basis points to 1.765% and 6.3 basis points to 2.311%, respectively.
Moreover, the ICE Dollar Index, which tracks the price of U.S. dollar against a basket of six major currencies, gained 0.4% to close at $98.65.
Why Domestic Small-Cap Stocks?
Investors are concerned that a rising dollar will hurt sales of U.S. multinational companies as their products will be more expensive in the international markets. Domestic business oriented small-cap companies are mostly immune to any external shocks since the United States is the lone market for their products. This will help them to outperform the broader market.
Notably, the United States has become a net exporter of oil and is no longer dependent on Middle East crude oil supply. Therefore, recent geopolitical tension in that region will have little impact on the United States.
Small-cap companies generally benefit from a strong domestic economy. In order to fund expansion, small-cap companies are less likely to take the debt route compared with their large peers making them less sensitive to the interest rate movement.
Additionally, reduction of corporate tax from 35% to 21% is a major catalyst for small-cap companies. These companies book almost all of their revenues in the homeland. As a result, a significant reduction in the corporate tax rate is immediately accretive to their cash flow.
Our Top Picks
At this juncture, investment in domestic business-focused small-cap stocks will be fruitful. We have narrowed down our search to five such stocks that popped in the past three months and still have upside left. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hallmark Financial Services Inc. HALL underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States. The company operates in the Specialty Commercial, Standard Commercial, and Personal segments. 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 5.9% over the last 60 days. The stock has jumped 33% in the past three months.
Chuy's Holdings Inc. CHUY owns and operates full-service restaurants under the Chuy's name in Texas and 19 states in the Southeast and Midwest United States. The company has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for the current year has improved 3.3% over the last 60 days. The stock has soared 13.6% in the past three months.
Southern First Bancshares Inc. SFST operates as the bank holding company for Southern First Bank that provides various banking products and services to the general public in South Carolina, North Carolina and Georgia. The company has expected earnings growth of 16.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.1% over the last 60 days. The stock has soared 12.6% in the past three months.
Boot Barn Holdings Inc. BOOT is a lifestyle retail chain that operates specialty retail stores in the United States. Its specialty retail stores offer western and work-related footwear, apparel and accessories for men, women and kids. The company has an expected earnings growth rate of 34.3% for the current year. The Zacks Consensus Estimate for the current year has improved 9.9% over the last 60 days. The stock has surged 8.6% in the past three months.
Exantas Capital Corp. XAN is a real estate investment trust, which primarily focuses on the origination, holding and management of commercial mortgage loans and commercial real estate-related debt investments in the United States. The company has an expected earnings growth rate of 49.3% for the current year. The Zacks Consensus Estimate for the current year has improved 8.2% over the last 60 days. The stock has gained 4.1% in the past three months.
5 Stocks Set to Double
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Southern First Bancshares, Inc. (SFST) : Free Stock Analysis Report
Hallmark Financial Services, Inc. (HALL) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
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