It has been almost 30 years, since Wall Street has performed this well in January. Both the S&P 500 and Dow advanced more than 7% last month, registering their biggest gains since January 1987 and January 1989, respectively. This is indeed an amazing recovery considering the fact that December was one of the worst months for stocks in almost 90 years.
Upbeat corporate earnings, undoubtedly, helped stocks move north so far this year. The Dow, in particular, has been aided by nearly 20% increases in The Goldman Sachs Group, Inc. GS, International Business Machines Corporation IBM and The Boeing Company BA. All these blue chips posted encouraging fourth-quarter results and provided healthy outlooks.
Tech stocks also moved up, primarily on account of solid earnings results. Needless to say, FAANG stocks like Facebook, Inc. FB and Netflix, Inc. NFLX each surged nearly 30% last month on the back of robust earnings, helping the Nasdaq gain 10% since the beginning of the year. The tech-laden index, in fact, had its best January since 2001.
Some of the other major players that topped forecasts included Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL, whose shares shot up more than 8% on a year-to-date basis. Even Apple Inc. AAPL, which began the year with discouraging sales guidance sending its stocks plummeting, is now up 6% for the year following its better-than-anticipated results.
While positive earnings season should certainly provide momentum to stocks heading into February, investors were also spurred by a trio of positive news related to government shutdown, trade war and the Fed policy.
Trio of Positive News
On the political side, senators from both sides of the aisle agreed to introduce an amendment that will temporarily reopen part of the government. While it may be too early to predict when the shutdown will end completely, at least it seems lawmakers are in mood to resolve the issue. Such a positive development, no doubt, encouraged Wall Street. After all, several companies have been raising their concerns about the Washington gridlock affecting their revenues and costing them money.
Meanwhile, Treasury Secretary Steven Mnuchin recently confirmed that the United States and China have made significant progress on talks to end the ongoing trade related dispute that sparked apprehensions of global economic slowdown. Trade war could have also easily overshadowed the benefits of the large tax cuts and deregulatory efforts taken by the Trump administration.
The Fed’s latest comment that the rate increases are on a pause is of utmost significance. This dovish stance will certainly help the broader market chug along in the near term. At the conclusion of its two-day policy meeting this week, the Fed confirmed that it would be “patient” with future rate hikes and has also indicated that the unwind of the asset portfolio could conclude sooner than expected.
Such views were widely considered as accommodative measures, at least for the time being, and have had a soothing effect on investors. After all, the Fed increasing rates last year did took a toll on them. And why not? Hike in rates increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy that is on the cusp of a slowdown this year.
5 Best Stocks to Buy in February
Courtesy of a dovish Fed, temporary end to government shutdown, optimism that U.S.-China trade deal might be on the cards and promising start to the earnings season, we are lined up for a strong February rally.
Just a word of caution! China’s factory activity, currently, is shrinking and that may stifle the rally. Consequently, it will be prudent to invest in five of the best stocks that can make the most of the largely bullish trend, and at the same time has limited exposure to the Chinese market.
These stocks, by the by, 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.
Office Depot, Inc. ODP offer office supplies in the United States, Puerto Rico, and the U.S. Virgin Islands. The Zacks Consensus Estimate for current-year earnings has moved up 3% in the past 60 days. The company’s expected earnings growth rate for the next quarter is 50%, in contrast with the industry’s projected decline of 20.3%.
Rent-A-Center, Inc. RCII leases household durable goods to customers on a rent-to-own basis. The company own stores in the United States, Canada, and Puerto Rico. The Zacks Consensus Estimate for current-year earnings has moved up 10.8% in the past 60 days. The company’s expected earnings growth rate for the current year is 270.4%, way ahead of the industry’s growth of 16.4%.
SkyWest, Inc. SKYW operates a regional airline in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 0.6% in the past 60 days. The company’s expected earnings growth rate for the current year is 49.3%, higher than the industry’s growth of 5.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Molina Healthcare, Inc. MOH provides Medicaid-related solutions to meet the health care needs of low-income families and individuals in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 0.4% in the past 60 days. The company’s expected earnings growth rate for the current year is a whopping 1,553.6% compared with the industry’s growth of 15.9%.
Shoe Carnival, Inc. SCVL operates as a family footwear retailer in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 12% in the past 90 days. The company’s expected earnings growth rate for the current quarter is 454.6%, in contrast with industry’s projected decline of 34.1%.
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