On Mar 12, the Department of Labor released Consumer Price Index (“CPI”) data for the month of February. Although inflation rose for the first time in four months, the data was in line with the consensus estimate and in fact saw a decline from the previous month on a year-over-year basis. Notably, core CPI, a key inflation metric, came in below expectation.
Market watchers are of the view that tamed inflation will allow the Fed to continue with its dovish monetary stance. All these positives will strengthen investors’ confidence in risky assets like equities. Consequently, it will be prudent to invest in stocks with strong growth potential and a favorable Zacks Rank.
Impressive CPI Data for February
The CPI for February came in at 0.2%, in line with the consensus estimate. Year over year, the cost of living index has declined to 1.5% in February compared with 1.6% in January. February’s yearly CPI gain is the smallest since September 2016.
However, core CPI –- the key inflation metric, which excludes erratic price changes of food and energy –- rose 0.1% in February, below the consensus estimate of 0.2%. Year over year, core CPI declined to 2.1% compared with 2.2% in January.
February’s CPI data was tamed despite a tight labor market. Hourly wage rate grew 0.4% in February compared with the consensus estimate of 0.3%. Inflation adjusted hourly wage grew 0.3%. The unemployment rate also declined to the historic low level of 3.8% from 4% in January.
Fed Likely to Maintain Dovish Stance
The benchmark inflation rate that the Federal Reserve follows is 2%. For as long as, inflation remains below 2%, the central bank will be unlikely to take an aggressive stance for rate hike. The last available core personal consumption expenditure (PCE) index –- the Fed’s most-favored inflation gauge –- was also 1.9% in December while February CPI stood at 1.5%.
On Jan 30, Fed chair Jerome Powell said that the central bank will maintain its dovish monetary stance at least for the time being. Notably, the Fed’s aggressive monetary stance in 2018 was largely held responsible by industry watchers for the stock market mayhem in the fourth quarter. On Feb 27, in his testimony before the House Committee, Powell said that the central bank will not downsize its $4 trillion balance sheet this year.
Decline in Government Bond Yields and Dollar Index
Following the release of February CPI data, yields on U.S. government bonds have declined. The yield on benchmark 10-year Treasury Note dropped to 2.639% from 2.641% on Mar 11. Likewise, yields on long-term 30-Year US Treasury Note decreased to 3.031% from 3.032%. Yields on short-term 2-Year Treasury Note slipped to 2.471% from 2.477%. Record-high government bond yields were largely blamed for the fourth quarter’s stock market turmoil.
Lower than inflation data also had an impact on the dollar index. On Mar 12, the ICE U.S. Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, decreased 0.3% to 96.913. On Mar 7, the DXY touched its three-month high at 97.70. Lower dollar price will make U.S. exports more competitive in the international markets.
Our Top Picks
The U.S. economy is likely to maintain its long-term growth albite at a slow pace. At this stage, investment in stocks with strong growth potential will be lucrative. Our selection is backed by a Growth Score of A and 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.
SS&C Technologies Holdings Inc. SSNC provides software products and software-enabled services to financial services and healthcare industries in the United States, Canada, Mexico, Europe, the Asia Pacific, and Japan. The company has an expected earnings growth rate of 30.5% for the current year. The Zacks Consensus Estimate for the current year has improved 7.3% over the last 60 days.
TESSCO Technologies Inc. TESS is a leading provider of the services, products and solutions required to build, operate, maintain and use wireless voice, data, messaging, location tracking and Internet systems. The company has an expected earnings growth rate of 38.2% for the current year. The Zacks Consensus Estimate for the current year has improved 22.6% over the last 60 days.
Insperity Inc. NSP provides human resources and business solutions to enhance business performance for small and medium-sized businesses in the United States. The company has an expected earnings growth rate of 22.9% for the current year. The Zacks Consensus Estimate for the current year has improved 7% over the last 60 days.
Telenav Inc. TNAV provides connected car and location-based platform services in the United States and internationally. The company has an expected earnings growth rate of 75.8% for the current year. The Zacks Consensus Estimate for the current year has improved 10.4% over the last 60 days.
Radiant Logistics Inc. RLGT operates as a third-party logistics and multi-modal transportation services company primarily in the United States and Canada. The company has an expected earnings growth rate of 62.1% for the current year. The Zacks Consensus Estimate for the current year has improved 6.8% over the last 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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