After climbing more than 40% from the March lows, the S&P 500 remained range bound in the past two weeks, not gaining much from early June. Still-high unemployment benefit claims amid the COVID-19 crisis, rising coronavirus cases with easing lockdowns and the Fed’s cautious outlook for the economy dampened investors’ sentiments. The market is often reacting to negative economic headlines.
The United States reported more than 30,000 new coronavirus cases on Jun 19, the highest number of daily infections recorded since May 1, according to data compiled by the Johns Hopkins University. The data has instigated fears of a second wave of coronavirus. Cases are soaring in states in the South and West and Midwest. Arizona, Florida, California, Nevada and South Carolina reported record-high, single-day increases on Jun 19.
The Fed now expects the U.S. unemployment rate to hit 9.3% this year, dropping to 6.5% in 2021 and declining further to 5.5% in 2022. The unemployment rate in May dropped to 13.3% from 14.7% in April. Before the pandemic, the U.S. unemployment rate was hovering near the 50-year lows of around 3.6%. The Fed sees American GDP falling by 6.5% in 2020 before rising by 5.0% in 2021 and 3.5% in 2022. The projections and Fed comments hint that the coronavirus-led economic crisis is far from over.
‘Rolling Ws’ Recovery in the Cards?
There is a “disconnect between Main Street and Wall Street,” per analysts. “Although the stock market was suggesting a V-shaped recovery, the more likely scenario is rolling Ws,” per Liz Ann Sonders, chief investment strategist at Charles Schwab, as quoted on CNBC.
A similar market pattern was noticed during the financial crisis, pointed out by Nicholas Colas, co-founder of DataTrek Research. After the stocks rallied nearly 40% from the 2009 bottom, the market moved sideways for about seven weeks so that fundamentals could match the market value.
Why You Should Focus on Value Stocks
With rising uncertainty and a global recessionary environment, investors may consider parking their money in value stocks. Numerous academic studies have shown that value stocks delivered higher returns with lower volatility compared with growth stocks, over the long term, in almost all the markets studied. Therefore, they should be part of any core portfolio.
CFRA’s Sam Stovall recently said the market has been highly overbought. Stovall said stocks could decline 5% to 10% from the Jun 8 peak. Having said this, we would like to note that we do not expect any severe crash in the market thanks to the unprecedented Fed and government stimulus. So, investors may consider investing in these value stocks to fight the impending volatility in Wall Street.
5 Value Stocks to Buy
Below we highlight a few stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy), a Value Score of A and one-week price change is higher than 10%.
United Natural Foods Inc. (UNFI)
United Natural Foods is the leading distributor of natural, organic and specialty food and non-food products in the U.S. and Canada. The Zacks Rank #1 stock comes from a favorable Zacks industry (placed at the top 22% of total 250+ industries in the Zacks universe).
Lumber Liquidators Holdings Inc (LL)
The Zacks Rank #2 company operates in its niche market in hardwood flooring. It hails from a favorable Zacks industry (top 12%).
Molina Healthcare Inc (MOH)
The Zacks Rank #2 company is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs such as the Medicaid program and the State Children's Health Insurance Program, catering to low-income persons.
Lowes Companies Inc. (LOW)
The Zacks Rank #2 companyis one of the world’s leading home improvement retailer, offering services to homeowners, renters and commercial business customers. It comes from a favorable Zacks industry (top 12%).
OneWater Marine Inc. (ONEW)
The Zacks Rank #2 company isa premium recreational boat retailer principally in the United States. It hails from a favorable Zacks industry (top 9%).
Zacks Top 10 Stocks for 2020
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Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
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OneWater Marine Inc. (ONEW) : Free Stock Analysis Report
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