The impressive turnaround of Wall Street in June after the market turmoil in May achieved a milestone on Jun 20. Buoyed by Fed’s strong signal of interest rate cut in 2019, the S&P 500 Index set a fresh all-time high. This is the second time so far in 2019 when the benchmark index has hit a new high.
At present, the S&P 500 Index is just 1.4% away to reach the 3,000 level for the first time. However, the important question is can it happen this year despite the presence of disturbing factors like trade conflict, geopolitical concerns and global economic slowdown?
S&P 500 Soars on Fed’s Rate Cut Hints
On Jun 19, in his speech following the FOMC meeting, Fed Chair Jerome Powell said that the benchmark lending rate was kept intact at 2.25-2.5%. However, the central bank said that the adoption of a more accommodative policy is gaining ground as some economic data raised concerns about U.S. and global growth. The noticeable fact is that out of 17 voting members of the Fed, a strong bunch of eight is expecting a rate cut this year.
Fed’s statement boosted investor confidence. Per CME FedWatch, traders are assigning 100% probability for a rate cut of at least 25 basis points in July. Consequently, on Jun 20, the S&P 500 Index closed at 2,954.18 after touching an intraday high of 2,958.06. The previous highest close of the broad-market index was 2,933.68 recorded on Apr 23.
Year to date, the S&P 500 is 17.8% after finishing in the negative territory in 2018. So far in June, the index is up 7.6%, witnessing a complete turnaround after plunging 6.6% in May.
Market Contingent Upon U.S.-China Trade Deal
Wall Street’s performance in 2019 will largely depend upon a trade deal between the United States and China, which broke down abruptly on May 5. So far, the United States has imposed 25% tariffs on $250 billion Chinese goods. China has retaliated by levying 25% tariff on $160 billion U.S. exports. President Trump had threatened imposing 25% tariffs on another $300 billion of Chinese goods if stalemate prevails in trade negotiations for an indefinite time period.
However, on Jun 18, Trump tweeted that he had a very good telephonic conversation with Chinese President Xi Jinping. He added: “We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” The G-20 summit of developed nations is scheduled for Jun 28-29 at Osaka.
Will Technology Sector Push S&P 500 to 3,000?
The biggest catalyst for the S&P 500’s rebound in 2019 is the technology sector, which has rallied 27.4% year to date. And from the eve of Christmas last year, when the benchmark index hit rock bottom, the sector has gained nearly 37%. Year to date, technology is the best-performing sector of the S&P 500. In the past one month also, this sector has recorded 6.6% growth, despite severe market volatility.
A trade deal with China will benefit the technology sector the most. China is the largest market for high-tech products of U.S. companies. At the same time, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries. Moreover, clinching a lasting agreement with China, which will strictly protect U.S. intellectual properties, will be immensely beneficial for the homegrown tech behemoths.
Our Top Picks
At this stage, it will be prudent to invest in technology stocks within the S&P 500 Index for solid gains. We have been able to narrow down our search on five stocks, strong growth potential. All five stocks currently sport a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The chart below shows price performance of our five picks in the past three months.
Microsoft Corp. MSFT is one of the largest broad-based technology providers in the world. Although software is the most-important revenue source, its offerings include hardware and online services. The company has an expected earnings growth rate of 18.3% for the current year. The Zacks Consensus Estimate for the current year has improved 4.1% over the last 60 days.
Cisco Systems Inc. CSCO designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The company has an expected earnings growth rate of 18.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 60 days.
Twitter Inc. TWTR operates as a platform for public self-expression and conversation in real time. It offers a real-time, global platform where any user can create a tweet and any user can follow other users. The company has an expected earnings growth rate of 22.1% for the current year. The Zacks Consensus Estimate for the current year has improved 20.7% over the last 60 days.
Akamai Technologies Inc. AKAM provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company has an expected earnings growth rate of 15.2% for the current year. The Zacks Consensus Estimate for the current year has improved 2% over the last 60 days.
Cadence Design Systems Inc. CDNS provides software, hardware, services, and reusable integrated circuit design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. The company has an expected earnings growth rate of 12.3% for the current year. The Zacks Consensus Estimate for the current year has improved 2.4% over the last 60 days.
Today's Best Stocks from Zacks
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