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Major Indexes Out of Correction Territory: 5 Top Picks

Nalak Das

Wall Street has been gaining momentum gradually since the beginning of 2019 after a disappointing 2018. All three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – are northbound so far this year. Notably, each of these indexes finished in the red in 2018 owing to extreme volatility in stock markets throughout the year.

However, Wall Street has commenced 2019 on a brighter note. Positive developments on trade war front and Fed’s monetary stance are likely to boost investor sentiment in the near-term resulting in further consolidation of the indexes. Consequently, it will be prudent to invest in stocks from these three indexes with a favorable Zacks Rank.

Indexes Out of Correction Territory

All three major indexes slipped into correction territory on Dec 24, 2018. However, on Jan 10, both Dow and S&P 500 ventured out of correction territory. Nasdaq Composite broke out a couple of days ago. On Jan 10, the Dow closed at 24,001.92, up 10.1% from its recent low on Dec 24. Similarly, the S&P 500 and Nasdaq Composite finished at 10.4% and 12.8% higher, respectively, from their recent lows.

So far only six trading days have been completed in 2019. The Dow has gained 2.9% year to date and 5.7% in the last five days. The S&P 500 has risen 3.6% year to date and 6% in the last five days. Meanwhile Nasdaq Composite has climbed 5.3% year to date and 7.9% in the last five days.

Positive Developments on Trade War Front

The three-day meeting between mid-level delegations of the United States and Chins ended on a positive note although broad-based solutions to tariff conflicts are yet to be reached. This meeting at least laid the foundation for further negotiations to forge a permanent deal in order to resolve the trade disputes between the two largest trading nations of the world.

The U.S. Trade Representative's office said that China has provided assurance of importing "a substantial amount" of agricultural, energy and manufactured goods and services from the United States. China's Commerce Ministry also considers the latest round of trade talks with the United States as extensive and a step forward for resolution of each other’s' concerns.

Fed Signals Dovish Monetary Stance

According to the latest FOMC minutes released on Jan 9, the central bank is likely to be patient about future interest rate increases. Fed officials are “less clear” about their future course of action regarding rate hikes. Several of them have argued that lack of inflationary pressure in the U.S. economy does not call for monetary which may act as a hindrance for steady state growth of the economy.

Earlier on Jan 4, Fed Chairman Jerome Powell said that the central bank will adjust rates if it witnesses any unexpected fluctuations in the U.S. economy. The Fed will also reconsider its balance sheet reductions in order to keep rates market friendly.

Our Top Picks

At this stage, it will be a prudent move to invest in stocks from these three indexes. Each of our picks has either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and provided better returns than the index in the last three months.

The chart below shows price performance of our five picks in the last three months.

Charter Communications Inc. CHTR: The company recorded positive earnings surprise of 46.1% in the last four quarters. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has expected earnings growth of 23.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 60 days.

Crocs Inc. CROX: The company recorded positive earnings surprise of 126.3% in the last four quarters. It sports a Zacks Rank #1. The company has expected earnings growth of 135.2% for current year. The Zacks Consensus Estimate for the current year has improved by 29.6% over the last 60 days.

Newell Brands Inc. NWL: The company recorded positive earnings surprise of 126.3% in the last four quarters. It flaunts a Zacks Rank #1. The company has expected earnings growth of 36.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 60 days.

Keysight Technologies Inc. KEYS: The company recorded positive earnings surprise of 13.3% in the last four quarters. It flaunts a Zacks Rank #1. The company has expected earnings growth of 16.4% for current year. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 60 days.

The Boeing Co. BA: The company recorded positive earnings surprise of 28% in the last four quarters. It carries a Zacks Rank #2. The company has expected earnings growth of 20.3% for current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 60 days.

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