The recent attack on Saudi oil facilities led to a sharp rise in oil prices, eventually dragging the broader market down. And since the incident, it’s natural for the stock market to toss and turn for some time. However, investors shouldn’t shun equities altogether. Historically, a big jump in oil price often leads to a stock rally in the following six-month period.
And with consumers feeling confident about their personal finances, increasing expectations of an imminent Fed rate cut and subdued trade-related concerns, the stock market will eventually get its mojo back. Banking on such bullish sentiments, investing in stocks that have the potential to grow in the near future seems judicious.
Oil Had a Record Trading Day
Coordinated drone strikes on key Saudi oil facilities have sent oil prices higher. Needless to say, oil prices rallied after such an attack raised concerns about supply disruption. The global oil benchmark Brent crude soared 14.6% to settle at $69.02 a barrel on Sep 16, its largest increase since 1988.
In fact, at one point of time during the trading session, Brent crude jumped as much as 19.5%, the largest intraday rise since January 1991, when the U.S. had attacked Iranian forces in Kuwait. The West Texas Intermediate (WTI) also went up 14.7% to settle at $62.90 a barrel.
By the way, Yemeni rebels have claimed responsibility for the attacks on Saudi oil facility that led to a disruption in the global supply of crude. The coordinated drone strikes on key Saudi oil facilities have removed nearly 5% of global supplies, and Saudi Arabia’s oil capacity is now expected to be below its maximum level for weeks.
What’s in Store for the Stock Market?
No doubt, the stock market had to bear the brunt of the spike in oil price. The attacks on Saudi oil production facilities unnerved investors. Naturally, investors pulled money out of equities and parked them in safe-haven assets. All the major bourses tumbled on Sep 16, with nine out of 11 S&P 500 sectors finishing in the red.
Dow Jones Market Data added that whenever oil prices jump more than 10% in a particular trading session, the Dow, the S&P 500 and the Nasdaq tend to decline on the same day. But, stocks do tend to rise in the months after a big oil price jump.
The broader S&P 500, on average, tends to rise 10.2% in the six months following a one-day spike in oil of more than 10%. Similarly, the Dow tends to rise 8.7% in the six-month period after a 10% jump in crude prices, while the Nasdaq witnessed a 15.5% increase.
And let’s admit, confident consumers, possibility of fresh stimulus and trade optimism, all of these will help stocks gain in the near term. Consumers have stood resilient throughout summer despite subdued global growth and trade-related concerns. This can be attributed to better-than-expected retail sales in August and the recovery in consumer sentiment this month from an almost three-year low. Thus, we can rest assured that households will continue to deliver for the economy.
The ECB, in the meantime, has launched fresh stimulus packages in an attempt to prevent a sluggish Eurozone economy from grinding to a halt. And as the ECB adds more stimuli, the pressure is mounting on the Fed to do the same. President Trump has called for the Fed to cut rates to boost the U.S. economy. In fact, now an overwhelming majority of observers are seeing an imminent rate cut on August’s soft employment report.
On the trade front, Beijing has lifted tariffs on some U.S. products amid trade tensions. As a gesture of goodwill, Trump also delayed tariff hikes against China. Per South China Morning Post citing the Customs Tariff Commission of the State Council, the exemptions on U.S. goods will take effect on Sep 17. The products don’t include big-ticket items like agricultural products but has items such as alfalfa pellets, fish feed and medical linear accelerators, to name a few.
Trump reciprocated by announcing a delay in the implementation of higher tariffs on $250 billion of Chinese goods. Trump tweeted that tariff hikes from 25% to 30% will now go into effect on Oct 15 rather than the previously scheduled Oct 1. Needless to say, a trade truce is always good news for investors. After all, trade wars affect the economy and squeeze corporate profits.
5 Solid Choices
With things expected to look up for the stock market after the giant jump in oil prices, investing in stocks with growth potential seems prudent. We have, thus, selected five such stocks that also flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Digital Turbine, Inc. APPS provides media and mobile communication products and solutions to mobile operators, application developers, device original equipment manufacturers (OEMs), and other third parties. The Zacks Consensus Estimate for its current-year earnings has surged 88.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 240% compared with the Internet - Software industry’s projected rally of 6.7%.
Boot Barn Holdings, Inc. BOOT operates specialty retail stores in the United States. The Zacks Consensus Estimate for its current-year earnings has moved up 9.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 34.3% compared with the Retail - Apparel and Shoes industry’s estimated rally of 2.7%.
Meta Financial Group, Inc. CASH offers various banking products and services in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 10.4% in the last 60 days. The company’s expected earnings growth rate for the current quarter is 110.4% against the Financial - Savings and Loan industry’s estimated decline of 5%.
Hallmark Financial Services, Inc. HALL underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The Zacks Consensus Estimate for its current-year earnings has risen 5.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 41.1% compared with the Insurance - Property and Casualty industry’s projected rally of 16%.
Pilgrim's Pride Corporation PPC engages in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 7.7% in the last 60 days. The company’s expected earnings growth rate for the current year is 53.9% compared with the Food - Meat Products industry’s expected rally of 10.7%.
5 Stocks Set to Double
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