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Tech Leads S&P 500 to Post Best 1H in 22 Years: 6 Top Picks

Nalak Das

Wall Street completed a record-breaking first half of 2019. Three major stock indexes --- the Dow, S&P 500 and Nasdaq Composite --- are up 14%, 17.4% and 20.7%, respectively. The performance of U.S. stocks in the first half of 2019 marked one of the best turnarounds in Wall Street’s history after a pathetic 2018, when all three indexes ended in the red.    

The S&P 500 Index scored several records during the first half of 2019. The primary driver of the broad-market index was none other than the technology sector. Notably, tech stocks are likely to push the S&P 500 to cross the 3,000 mark for the first time.

S&P 500 Posts Blockbuster Performance in 1H 2019

The S&P 500 gained 17.4% in the first half of 2019, marking its best first-half performance in any year since 1997. The broad-market index witnessed an impressive turnaround this year after finishing last year in negative territory, with its worst-ever yearly performance since 2008. Notably, all 11 broad sectors of the index were in positive territory in the first half 2019, with ten recording significant double-digit growth.

During this time period, the S&P 500 touched all-time highs twice, the latest being on Jun 20, when the index closed at 2,954.18 after an intraday high of 2,958.06. In five out of six months this year, the benchmark index posted positive returns.

From January to April, the S&P 500 Index gained 7.9%, 3%, 1.8% and 3.9%, respectively. In May the market’s benchmark plunged 6.6% due to an abrupt break down of the U.S.-China trade talks, only to witness an impressive rebound of 6.9% in June. Notably, the S&P 500 logged the best June performance since 1955.

Technology Leads S&P 500 Rally

The biggest catalyst for the S&P 500’s rebound in 2019 is the technology sector, which has rallied 25.9% year to date. And from the eve of Christmas last year, when the benchmark index hit rock bottom, the sector has gained nearly 36%.

In a major boost to the tech sector, the first genuine ray of hope for a potential solution to the U.S.-China trade spat which stalled in May came from the just-concluded G-20 summit in Japan. On Jun 29, President Donald Trump and China’s president Xi Jinping agreed to continue negotiations for an amicable solution.

Moreover, both sides have decided to restrain from imposing further tariffs on each other for the time being. So far, the United States has imposed 25% tariff on $250 billion Chinese goods while China has retaliated with 25% tariff on $160 billion U.S. goods. President Trump has threatened to impose 25% tariff on another $300 billion of Chinses goods.

Additionally, the U.S. government has decided to ease some restrictions on Chinese telecom behemoth Huawei. The Trump administration has decided to allow U.S. tech companies to sell products that will not harm U.S. national security to Huawei.

Will Technology Sector Push S&P 500 to 3,000?

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.

At present, the S&P 500 is around 2% away from a landmark 3,000 level. Positive developments on the trade war front and a dovish monetary policy of the Fed can easily push the broad market index to 3,000 for the first time.

According to FedWatch, most of the respondents are looking for a rate cut by the central bank in July or may by twice by September. Yet again, the technology sector is set to be the primary driver.

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 six stocks, which soared in the first half and still have upside left. All the six stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows price performance of our six picks year to date.

Keysight Technologies Inc. KEYS provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor, and electronic industries in the Americas and Asia Pacific. The company has an expected earnings growth rate of 30.6% for the current year. The Zacks Consensus Estimate for the current year has improved 8.2% over the last 60 days. The stock price has surged 44.6% year to date.

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. The stock price has surged 26.3% year to date.

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 0.2% over the last 60 days. The stock price has surged 31.2% year to date.

Harris Corp. HRS provides technology-based solutions that solve government and commercial customers' mission-critical challenges in the United States and internationally. The company has an expected earnings growth rate of 25.4% for the current year. The Zacks Consensus Estimate for the current year has improved 0.9% over the last 60 days. The stock price has soared 40.4% year to date.

AMETEK Inc. AME is a leading global manufacturer of electronic instruments and electromechanical devices. The company has an expected earnings growth rate of 24% for the current year. The Zacks Consensus Estimate for the current year has improved 0.2% over the last 60 days. The stock price has soared 34.1% year to date.

Intuit Inc. INTU provides financial management and compliance products and services for small businesses, consumers, self-employed and accounting professionals. The company has an expected earnings growth rate of 19.4% for the current year. The Zacks Consensus Estimate for the current year has improved 2% over the last 60 days. The stock price has surged 32.7% year to date.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


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