President Trump downplayed fears of a global recession and is considering a new round of tax cuts to boost the economy. China’s unveiling of new interest rate reforms and Germany’s hinting at stimulus measures also quelled fears of an economic downturn. Thus, it’s time to buy fundamentally sound stocks that can make the most of the global economic stimulus.
Is a Global Recession on the Horizon?
As the United States and China continued to engage in a trade spate, fears of recession had increased considerably. Two of the world’s largest economies have been levying tariffs on billions of dollars of their products for quite some time now. The United States, in fact, has targeted Huawei in the trade conflict, making it almost impossible for U.S. companies to do business with the Chinese telecom giant.
What’s more, a key part of the U.S. yield curve inverted for the first time since the summer of 2007, a tell-tale sign that a recession may be on the anvil. Weak data from China and Germany has also added to fears of the global economy running out of steam.
Such concerns have compelled investors to take money out of the equity market and park them in safer government bonds. Morningstar added that investors have already poured nearly $500 billion into fixed income mutual funds for the first half of the year.
But of late, things have been looking up for the stock market, with major indexes closing in the green in the last trading session. And it’s all because of investors expecting the White House to take new steps to tackle flagging growth. The Trump administration has considered implementing a new round of tax cuts to boost the economy. To top it, China and Germany’s stimulus measures have allayed fears of a severe downturn in the near term.
White House Considers Tax Cuts
Per the Tax Policy Center, several Americans pay 6.2% tax, which the federal government applies on wages to fund Social Security, Medicare, and other social insurance programs. But now, several Trump administration officials are considering a temporary payroll tax cut. A tax cut bodes well for the economy as consumers will have more cash to splurge.
Talking about the economy, White House economic adviser, Larry Kudlow, categorically said that the U.S. economy is in pretty good shape, and he doesn’t see a recession at all. Lest we forget, the labor market is in the pink, while consumers are confident about their well-being as evident from the booming retails sales numbers from last month.
Meanwhile, Trump said that “I don’t think we’re having a recession.” He added that “we’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”
China, Germany — Stimulus Measures
China has, recently, declared that it is going to take necessary measures to boost its economy. The People's Bank of China currently intends to lower borrowing cost for companies. Such an easing move helped shares of Chinese real estate developers climb north. For instance, shares of Country Garden, China’s largest developer in terms of sales, climbed 5.8% in Hong Kong yesterday.
Stephen Innes, managing partner for Valour Markets Pte in Singapore, in a research note wrote that the reforms “have opened up the door for potential rate cuts and should immediately offer up a [reprieve] to Chinese companies.”
German Finance Minister Olaf Scholz, in the meantime, suggested Berlin should make available up to 50 billion euros ($55 billion) of extra spending to shore up its economy. The plan will also improve consumer spending. Needless to say, Chancellor Angela Merkel said the economy is “heading into a difficult phase” and the government will take required steps to rev up its economic engine.
5 Solid Buys
With the global economy poised to improve on fresh stimulus measures, investing in fundamentally-sound companies at this moment seems judicious. These companies are financially stable enough to gain from a healthy economy. We have zeroed in on companies that flaunt a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
AngloGold Ashanti Limited AU operates as a gold mining company. The Zacks Consensus Estimate for its current-year earnings has advanced 14.9% in the past 60 days. The stock’s expected earnings growth rate for the current year is 118.9% compared with the Mining - Gold industry’s projected increase of 14.9%.
Bristol-Myers Squibb Company BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products. The Zacks Consensus Estimate for its current-year earnings has moved 2.2% up in the past 30 days. The stock’s estimated earnings growth rate for the current year is 7% compared with the Large Cap Pharmaceuticals industry’s expected rise of 1.6%.
Delta Air Lines, Inc. DAL provides scheduled air transportation for passengers and cargo in the United States and internationally. The Zacks Consensus Estimate for its current-year earnings has climbed 6% in the past 60 days. The stock’s expected earnings growth rate for the current year is 24.8% compared with the Transportation - Airline industry’s projected rise of 8.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
JD.com, Inc. JD operates as an e-commerce company and retail infrastructure service provider in the People's Republic of China. The Zacks Consensus Estimate for its current-year earnings has advanced 27.9% in the past 60 days. The stock’s expected earnings growth rate for the current year is 155.9% against the Internet - Commerce industry’s estimated decline of 13%.
M/I Homes, Inc. MHO operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas, the United States. The Zacks Consensus Estimate for its current-year earnings has advanced nearly 9% in the past 60 days. The stock’s expected earnings growth rate for the current year is 15.1% against the Building Products - Home Builders industry’s projected decline of 9%.
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Click to get this free report Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report JD.com, Inc. (JD) : Free Stock Analysis Report Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report M/I Homes, Inc. (MHO) : Free Stock Analysis Report AngloGold Ashanti Limited (AU) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research