Historical data shows that this January will do better than normal. While stock investors are, no doubt, counting on the ‘January effect,’ this January comes in the third year of presidential election cycles, which also bodes well for equities.
Stellar jobs report, dovish commentary by the Fed Chair and thawing of Sino-U.S. trade tensions are some of the developments that are making traders all the more upbeat on the New York Stock Exchange. Given the positives, investing in stocks that can make the most of the encouraging trend seems judicious.
Third Year of Presidential-Election Cycles
January has mostly been a strong month for stocks. Major bourses did gain in the last two successive trading sessions that erased the worst start to a year since 2000. Some analysts say that this January, in particular, is the best month for stocks because it comes in the third year of the presidential-election cycle.
Since 1950, the broader S&P 500 has registered its best gains in January during pre-election years, posting an average gain of 3.9% for the month, per Dow Jones Market Data. Meanwhile, the S&P 500’s average gain for all the other Januarys since 1950 is 1%, data indicated. The ruling party’s typical initiative to implement new policies or aim for lower taxes ahead of a presidential election in an effort to propel the U.S. economy is cited to be one of the reasons for such gains.
(Source: Dow Jones Market Data)
The recent two days surge also lends hope to the idea that a “January effect” may be taking place. It is a seasonal increase in stock prices during the month of January, which mostly follows a drop in share prices in December.
Income-tax sensitive investors generally sell underperforming stocks at the end of the year in order to claim a capital loss, which is tax-deductible. And then such investors reinvest in a New Year.
For example, let’s assume an investor earned $15,000 from the sale of ABC stock. Now, the investor needs to pay a capital gain tax of 20%, or $3,000, to the government. However, let’s say the investor sells XYZ stock for a loss of $7,000, then the net capital gain for tax purpose will be $15,000 - $7,000 = $8,000. This means the investor now needs to pay only $1,600 in capital gains tax.
Blockbuster Jobs Report Makes a Mockery of Recession Fears
Signs of a strong U.S. labor market, by the way, weakened recession concerns. The U.S. economy added 312,000 new jobs in December, the highest hiring in 10 months. This also marked the second-highest number of job additions in any month of the Trump administration.
(Source: Bureau of Labor Statistics)
Employers added 2.6 million jobs in 2018, more than 2.2 million added in 2017. Hiring in October and November were also way more than reported earlier, with 58,000 new jobs added to the 2018 total. Such a feat was achieved despite questions about employers’ ability to find skilled labor and headwinds associated with slowdown in cyclical part of the economy, including housing.
The jobless rate, in the meantime, continues to languish at historically low levels, while the hourly pay went up 0.4% to $27.48 last month. In the last 12 months, wages rose to 3.2% from 3.1%, matching a post-recession high set earlier in the year.
A Dovish Fed, Easing Trade Tensions
Federal Reserve Chairman Jerome Powell’s dovish commentary is equally responsible for powering a rally, while easing trade tension between the United States and China could boost gains further.
Powell did mention that the Fed could be patient when it comes to future interest hikes. He acknowledged that inflation remained muted and, thus, the central bank is in no hurry to hike rates. This is the first time that Powell has used the word patient, something that former Fed Chair Janet Yellen used numerous times.
The United States and China, in the meanwhile, hold crucial talks in Beijing to ease a bitter trade war between two of the world’s most powerful economies. Both the countries have been involved in a trade spat since the beginning of 2018, increasing import tariffs on more than $300 billion of each other’s commodities.
5 Top Gainers
Thanks to the aforesaid factors, this January, is forecasted to be a good one for the market. At the same time, insiders tend to be pretty bullish. They continue to buy shares of their own company stock than they sell, per Vickers Stock Research.
We have, thus, selected five solid stocks that can perform well as the market is widely expected to gain. These stocks flaunt a Zacks Rank #1 (Strong Buy) and a Growth Score of A, which offers the best opportunities in the growth investing space.
BioTelemetry, Inc. BEAT provides cardiac and mobile blood glucose monitoring (BGM), centralized medical imaging, and original equipment manufacturing services for the healthcare and clinical research industries. In the past 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 5.2% in the same period. The company’s projected earnings growth rate for the current year is 86.6%, while the Medical Services industry is expected to gain 18.5%.
Navios Maritime Partners L.P. NMM owns and operates dry cargo vessels. In the past 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 18.2% in the same period. The company’s projected earnings growth rate for the current year is 62.5%, while the Transportation - Shipping industry is expected to decline 0.5%.
RH RH operates as a retailer in the home furnishings. In the past 60 days, nine earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 10.4% in the same period. The company’s projected earnings growth rate for the current year is 175.4%, while the Retail - Home Furnishings industry is likely to gain 10.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
TripAdvisor, Inc. TRIP operates as an online travel company. In the past 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 8.1% in the same period. The company’s projected earnings growth rate for the current year is 69.6%, while the Internet - Commerce industry is expected to decline 5.2%.
eGain Corporation EGAN operates as a software-as-a service provider of customer engagement solutions. In the past 60 days, one earnings estimate moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 100% in the same period. The company’s projected earnings growth rate for the current year is 33.3%, while the Internet - Software industry is likely to gain 18.3%.
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