After posting an impressive rally in the first four months of 2019, Wall Street faced a severe downturn in May. Abrupt breakdown of U.S.-China trade negotiations plus several weak economic data of April and May dented investors' confidence to a large extent. However, the situation improved in the beginning of June after the Fed Chairman's indication of a possible cut in benchmark interest rate.
The benchmark S&P 500 Index followed the same pattern. During the first four months of this year, the index recorded the largest gain in 30 years. In May, it plunged only to recover some lost ground in the first week of June.
U.S.-China Trade Conflict Continues
So far, the U.S. government has imposed 25% tariffs on $250 billion Chinese goods while China has retaliated with 25% tariff on $170 billion of U.S. exports. It does not stop there. President Trump has expressed his desire to levy 25% tariff on another $325 billion Chinese products, if the Chinese President fail to meet him in a negotiation during upcoming G-20 summit.
Additionally, on May 15, the Trump administration blacklisted Chinese behemoth Huawei Technologies from doing business with U.S. counterparts. As a retaliatory move, China has decided to stop exporting rare earth minerals to the United States.
These are crucial inputs for developing high-tech products like smartphones, computer memory chips and rechargeable batteries as well as defense-related aerospace products. China has a near monopoly of producing these minerals and almost 80% of these minerals are exported by China to the United States.
Fundamentals of S&P 500 Index Remain Strong
In May, the S&P 500 tumbled 6.6%. Sudden break down of U.S.-China trade negotiations and Trump’s threat to impose tariff on Mexico were the main culprits of the Wall Street rout. Notably, per Ben Carlson, of Ritholtz Wealth Management, a pullback of 5% or more in a month on the S&P 500 Index happened in 65 of the last 70 years. So, a sudden shock last month may well be the much-needed correction to-the four-month long rally.
However, the broad-market index recovered the lost ground to a large extent with a gain of 4.4% in the first week of June. The turnaround of the index was primarily owing to strong market expectation of a rate cut by the Fed. Year to date, the index is up a significant 15.2%.
On Jun 10, the S&P 500 climbed 0.5% to close at 2,886.73. This is higher than both the 200-day and 50-day moving averages of 2,775.04 and 2,871.90, respectively, for the index. These two technical barriers are psychologically important as they provide long-term and short-term support levels of the index. Moreover, the S&P 500 is at present little more than 1.6% away to reach its all-time high of 2,933.68, recorded on Apr 23.
Our Top Picks
At this stage, we have narrowed down our search to five such S&P 500 stocks that have gained impressively so far in 2019 and still have upside left. Each of these stocks 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.
American International Group Inc. AIG provides insurance products for commercial, institutional, and individual customers in North America and internationally. The company has expected earnings growth of 323.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 13% over the last 60 days. The stock has surged 35.3% year to date.
Arconic Inc. ARNC engineers, manufactures, and sells lightweight metals worldwide. It operate in three segments: Engineered Products and Solutions, Global Rolled Products and Transportation and Construction Solutions. The company has expected earnings growth of 32.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 60 days. The stock has surged 38.2% year to date.
Hasbro Inc. HAS is a global play and entertainment company offering toys and games to television, movies, digital gaming and consumer products. The company has expected earnings growth of 17.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.9% over the last 60 days. The stock has surged 30.2% year to date.
Illumina Inc. ILMN provides sequencing and array-based solutions for genetic analysis. It operates in two segments, Core Illumina and Consolidated VIEs. The company has expected earnings growth of 16.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.3% over the last 60 days. The stock has gained 12.4% year to date.
Jefferies Financial Group Inc. JEF is a financial services company, engaged in investment banking and capital markets, asset management, and direct investing businesses in the Americas, Europe, and Asia. The company has expected earnings growth of 27.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 13.2% over the last 60 days. The stock has gained 3.9% year to date.
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