It has been a superb year for equities so far, with the S&P 500 seeing the best first half in 22 years. It’s all because of Fed’s abrupt reversal of a plan to raise rates, followed by strong signals to trim rates in the near future. And with the United States and China agreeing to pause their tariff war, things are rosier for the stock in the second half.
Given the bullishness, it seems prudent to invest in stocks that can make the most of the market’s upward journey.
Best June in Decades, Strong First Half
Wall Street recorded its best June in a decade. The broader S&P 500 has risen 17% so far this year, displaying its best first-half performance since 1997. The S&P 500 also registered its best June since 1955, rising 6.89%. The Dow also recorded its best first half since 1999 and best June since 1938. Tech-heavy Nasdaq did not lag behind. The index posted its best June since 2000.
So, what’s behind this stellar performance? The apparent shift in Fed’s stance over interest rate cuts has helped the stock market reach record highs and defy odds, including trade war jitters, a slowdown in global economy, a partial government shutdown and lackluster corporate earnings.
The Fed did keep rates steady but gave indications of a cut in the near term if the global economic outlook doesn’t improve. After all, prolonged trade issues between the United States and its trading partners have raised concerns about global economic growth. By the way, the long-term interest rates are currently lower than short-term interest rates, which is a tell-tale sign that recession is imminent.
Needless to say, stocks tend to rise in an environment when rates decline as it eventually leads to cheaper borrowing costs for both corporate houses and individuals. What’s more, U.S. consumer spending increased moderately in May giving hopes that the Fed will trim rates.
It’s also worth pointing out that the stock market rally was sparked by European Central Bank President Mario Draghi, who said that ECB will roll out fresh stimulus to boost the Eurozone economy in its next policy meeting in July.
And if we look at individual sectors, tech stocks have gained immensely. In fact, high tech dominance during the several years of the bull market made headlines, with Google, Facebook, Amazon and Apple overshadowing legacy names like General Electric, Walmart and Exxon. Many of these tech behemoths quite successfully overcame regulators and politicians scrutiny over the past several months.
Market Has More Room to Run in 2H
Wall Street is expected to gain traction in the second half of this year as well. And why not? Steady job addition and wage growth continue to boost consumer outlay. Most importantly, the recent resolution of the trade war that dissolves business uncertainty could improve demand for new equipment and factories.
President Trump and China’s Xi Jinping have agreed to a tariff war cease-fire. Trump categorically mentioned that the additional tariffs he threatened to impose on billions of dollars of Chinese goods will not be implemented for the “time being.” Trump confirmed that relation with China is “right back on track” during his lengthy meeting with Xi in the G20 summit in Osaka.
And when it comes to July, in particular, the stock market tends to experience the so-called summer rally. As a matter of fact, July is the best of the worst months (May-October) in a year.
Also, July’s first trading day is the most bullish day of the year. The S&P 500 has been up 84.2% of the time since 2000, and has gained on average 0.35%. The Dow and the Nasdaq have also been up 79% and 74% of the time, respectively.
5 Solid Choices
With equities set to gain, it makes sense to invest in stocks that are fundamentally strong enough to cash in on the uptrend throughout this year. We have, thus, zeroed in stocks that have a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Fly Leasing Limited FLY leases commercial aircraft under multi-year contracts to various airlines. The Zacks Consensus Estimate for its current-year earnings has increased 24.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 36.5%, higher than the Transportation - Equipment and Leasing industry’s protected rally of 9.6%. The company has outperformed the broader industry so far this year (+64.8% vs +19.6%).
First Business Financial Services, Inc. FBIZ provides commercial banking products and services for small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. The Zacks Consensus Estimate for its current-year earnings has increased 2.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 22%, higher than the Banks - Midwest industry’s estimated rise of 8.4%. The company has outpaced the broader industry on a year-to-date basis (+20.5% vs +9.7%).
Malibu Boats, Inc. MBUU designs, manufactures, distributes, markets, and sells recreational powerboats. The Zacks Consensus Estimate for its current-year earnings has risen 4.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 40%, higher than the Leisure and Recreation Products industry’s expected rally of 10.7%. The company has outperformed the broader industry over the past two years (+45.0% vs -0.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sanmina Corporation SANM provides integrated manufacturing solutions, components, products and repair, logistics, and after-market services. The Zacks Consensus Estimate for its current-year earnings has increased 8.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 47.5%, higher than the Electronics - Manufacturing Services industry’s protected rally of 23.5%. The company has outpaced the broader industry on a year-to-date basis (+25.9% vs +18.2%).
OSI Systems, Inc. OSIS designs, manufactures, and sells electronic systems and components. The Zacks Consensus Estimate for its current-year earnings has increased almost 5% over the past 90 days. The company’s expected earnings growth rate for the current year is 16.9%, compared with the Electronics - Miscellaneous Components industry’s protected decline of 6.4%. The company has outpaced the broader industry so far this year (+53.7% vs +27.5%).
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Fly Leasing Limited (FLY) : Free Stock Analysis Report
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