Amid widespread growth concerns and geopolitics, global stock markets are on track to record their best first-half performance in more than 20 years. This performance has been primarily driven by central banks across the world again moving to easy money policies. While some signaled interest rate cut, others offered fresh stimulus to tackle global growth headwinds. Additionally, trade deal hopes as well as slew of mergers & acquisitions added to the strength.
Below we discuss some of the events that dominated the headlines in the first half and influenced the market:
Fed Remains Dovish
The Federal Reserve turned dovish at the start of the year and pledged to be patient. In its latest FOMC meeting concluded this month, Fed Chair Jerome Powell hinted at future rate cuts, if needed, to protect the economy from trade conflicts and other threats.
The central bank dropped the word “patient” in favor of language promising to “closely monitor the implications of incoming information for the economic outlook.” Fed also said that it will "act as appropriate to sustain the expansion” because "uncertainties" have increased. Amid a lower-rate environment, high-dividend-yield sectors such as utilities and real estate will be the biggest beneficiaries given their sensitivity to interest rates.
Some of the top-ranked stocks from these spaces include Brookfield Renewable Partners L.P. BEP, Atlantic Power Corporation AT, Invitation Home Inc. INVH and Clipper Realty Inc. CLPR. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead. Further, these stocks are expected to generate solid earnings growth this year (BEP – 261.5%, AT - 50%, INVH – 443.5% and CLPR – 17.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Trade and Geopolitics
After a brief period of calm, U.S.-China trade spat resumed in May after President Donald Trump increased tariff to 25% from 10% on Chinese goods worth $200 billion. In retaliation, China imposed as much as 25% tariff on U.S. imports worth $60 billion effective Jun 1. Trump also threatened to slap tariff on the remaining $300 billion of Chinese goods if there is no progress on the trade deal.
The worsening relationship could ignite a global recession, compelling investors to take flight to safety. Meanwhile, rising tensions between the United States and Iran also raise appeal for the yellow metal. Trump signed an executive order to impose “hard-hitting” sanctions against Iran after a U.S. drone was shot down last week. These concerns coupled with lower interest rates pushed up the price of gold, which often acts as safe haven, benefiting gold mining companies.
AngloGold Ashanti Limited AU, with a Zacks Rank #1 and VGM Score of A, emerged as the winner in June, gaining 49.2%. The Zacks Consensus Estimate for 2019 has moved up from 75 cents to $1.01 over the past three months. It has an estimated earnings growth rate of 90.6%.
Alamos Gold Inc. AGI took the shining spot in the first half, with gains of 68.9%. Its earnings estimate has moved up by a couple of cents for this year in the past three months. The stock has an estimated growth of 160% for this year. Alamos Gold has a Zacks Rank #3 (Hold) and a VGM Score of A.
Oil price rebounded strongly at the start of the year on fresh OPEC-led output cuts, declines in Venezuela, Iran, potentially Libya and temporary outages in Russia. In addition, falling OPEC production and Fed’s dovish outlook also added to the strength. However, the impressive gains eroded in May on escalation in U.S.-China trade spat, which raised fears of global growth slowdown threatening demand. An inverted yield curve, which suggests imminent recession, also resulted in the decline. The combination of these factors sent oil price into a bear market territory.
The bearish trend seems to be reversing lately, buoyed by two tanker attacks in the Gulf of Oman and rising U.S.-Iranian tensions that threatened oil supply at large. The Fed’s readiness to cut interest rates, which may stimulate global demand, also led to optimism.
Amid the ongoing rush in oil prices, Torchlight Energy Resources Inc. TRCH stole the show climbing about 107% in the first half while Pioneer Energy Services Corp. PES has been the biggest laggard, losing 78.8%. Both the stocks carry a Zacks Rank #3.
Top Stock of 1H
ConforMIS, Inc. CFMS topped the list of best-performing stocks of the first half, skyrocketing about 984%. This medical technology company, which develops, manufacture and sells joint replacement implants, currently has a Zacks Rank #3 and a VGM Score of B. It has an estimated earnings growth rate of 41.9% for this year and delivered positive earnings surprise of 11.43% in the past four quarters.
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Atlantic Power Corporation (AT) : Free Stock Analysis Report
Brookfield Renewable Partners L.P. (BEP) : Free Stock Analysis Report
ConforMIS, Inc. (CFMS) : Free Stock Analysis Report
AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
Alamos Gold Inc. (AGI) : Free Stock Analysis Report
Pioneer Energy Services Corp. (PES) : Free Stock Analysis Report
Torchlight Energy Resources, Inc. (TRCH) : Free Stock Analysis Report
Invitation Home Inc. (INVH) : Free Stock Analysis Report
Clipper Realty Inc. (CLPR) : Free Stock Analysis Report
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