Good news from both economic and political fronts poured into Wall Street in the first week of September after a disappointing August. Renewed enthusiasm on U.S.-China trade talks, ease in geopolitical concerns, strong U.S. economic data and a high-probability of a second rate cut by Fed this month are likely to drive Wall Street’s rally, which stared from the last week of August barring some minor fluctuations.
Fresh Initiatives for U.S-China Trade Talks
On Aug 5, China’s Ministry of Commerce informed that Liu He, its top negotiator on trade, had a telephonic discussion with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to reopen the trade-related negotiation. The two sides have agreed to hold the next round of meeting at Washington, D.C. early next month for which preparatory consultations will start from mid-September.
Notably, this will be the 13th round of meeting between the two largest trading nations of the world in the last 18 months. Negotiations failed to achieve any fruitful result on the previous 12 occasions and tariff war flare up after every failed meeting.
However, Hu Xijin, editor-in-chief of the Global Times and an insider of the Chinese authority tweeted that “There’s more possibility of a breakthrough between the two sides,” this time. Meanwhile, the U.S. administration has confirmed the phone call but not the October meeting.
Geopolitical Concerns Ebb
On Sep 4, Carrie Lam, CEO of Hong Kong announced the withdrawal of the extradition bill, which the Chinese government tried to impose. This resulted in more than three months of vigorous protests for democracy leading to fear of a major financial breakdown among global investors community. Notably, Hong Kong is the financial hub of Asia and its closed proximity with the Eurozone may result in a global financial crisis.
On Aug 4, the U.K. parliament rejected prime minister Boris Johnson’s call for a snap poll next month to pave the way for a no-deal Brexit. Britain in scheduled to leave the European Union by Oct 31, with or without a deal. Most of the British parliamentarians are of the view that the exit date should be extended to explore options of a Brexit deal.
Strong Economic Data
On Aug 5, the Institute of Supply Management (ISM) reported that the U.S. Services (non-manufacturing) PMI (purchasing manager index) jumped to 56.4% in August from 53.7% in July, which was the lowest reading since August 2016. The consensus estimate was for 54.2%. Notably, any reading above 50% indicates expansion of the services sector, which constitutes more than 70% of U.S. economic activities.
The Department of Commerce reported that new orders for U.S factory-made goods (both durable and non-durable) climbed 1.4% in July compared with 0.5% in June and above the consensus estimate of 1%. New orders for manufactured durable goods increased 2% in July compared with 1.8% in June.
On Aug 15, the Department of Commerce reported a 0.7% jump in retail sales in July compared with 0.3% in June and the consensus estimate of 0.2%. Moreover, core retail sales (excluding sales at auto dealers and gasoline stations) increased 1% in July, surpassing June’s rise of 0.3% and the consensus estimate of 0.4%.
Fed Likely to Cut Rate Again
Despite strong economic data, the market has assigned a high chance for the Fed to reduce the benchmark leading rate again in September after doing the same in July, for the first time in 11 years. The U.S. manufacturing sector, which accounts for 12% of the GDP, is facing weakness due to the ongoing tariff war.
The ISM reported two days ago that U.S. manufacturing contracted in August and business confidence slackened to a large extent. Additionally, inflation remained muted at 1.4% in July, far below the central bank’s target rate of 2%.
All these negatives are likely to compel the Fed to cut rate again this month. At present, the CME FedWatch has assigned 95% probability of a 25 basis-point cut and 5% chance of a 50 basis-point rate cut.
Our Top Picks
The U.S. economy is likely to maintain its long-term growth albeit at a slow pace. Several stimulus measures across the globe will also help the U.S. economy to remain stable. At this stage, investment in stocks with a strong growth potential will be lucrative. Our selection is backed by a Growth Score of A and Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks soared in the past three months despite severe volatility and still have upside left.
FTI Consulting Inc. FCN provides business advisory services to manage change, mitigate risk, and resolve disputes worldwide. It offers a comprehensive suite of services designed to assist clients across the business cycle --- from proactive risk management to the ability to respond rapidly to unexpected events and dynamic environments.
The company has an expected earnings growth rate of 35.5% for the current year. The Zacks Consensus Estimate for the current year has improved 27.8% over the last 60 days. The stock soared 25.9% in the past three months.
Keysight Technologies Inc. KEYS provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor and electronic industries in the Americas and the Asia Pacific. It also offers customization, consulting and optimization services throughout a customer's product lifecycle.
The company has an expected earnings growth rate of 38.9% for the current year. The Zacks Consensus Estimate for the current year has improved 6.4% over the last 60 days. The stock skyrocketed 20.9% in the past three months.
NewMarket Corp. NEU offers lubricant additives for use in various vehicle and industrial applications, including engine oils, transmission fluids, off-road powertrain and hydraulic systems, gear oils, hydraulic oils, turbine oils, metalworking fluids, and other applications where metal-to-metal moving parts are utilized; and engine oil, driveline, and industrial additives.
The company has an expected earnings growth rate of 16.2% for the current year. The Zacks Consensus Estimate for the current year has improved 10.4% over the last 60 days. The stock jumped 18.8% in the past three months.
Pilgrim's Pride Corp. PPC engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products in the United States, the United Kingdom, Europe and Mexico. As a vertically integrated company, it controls every phase of the production of its products.
The company has an expected earnings growth rate of 55.5% for the current year. The Zacks Consensus Estimate for the current year has improved 8.7% over the last 60 days. The stock soared 15.6% in the past three months.
The Scotts Miracle-Gro Co. SMG manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. It operates through three segments: U.S. Consumer, Hawthorne and Other. It has a strong brand value and recognition within the industry.
The company has an expected earnings growth rate of 21.3% for the current year. The Zacks Consensus Estimate for the current year has improved 5.1% over the last 60 days. The stock surged soared 15.5% in the past three months.
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Click to get this free report NewMarket Corporation (NEU) : Free Stock Analysis Report Keysight Technologies Inc. (KEYS) : Free Stock Analysis Report Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report The Scotts Miracle-Gro Company (SMG) : Free Stock Analysis Report FTI Consulting, Inc. (FCN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research