Wall Street saw a wild August with the S&P 500 posting 11 moves of more than 1% in 22 trading sessions of the month. Those moves included three declines of at least 2.6% as well as the index’s worst day of the year on Aug 5, per CNBC. The large swings were mainly triggered by escalation in trade tensions and a recession warning by the bond market. Additionally, weak global economic data, low inflation and political unrest in Hong Kong added to the chaos.
Below we discuss some of the events that dominated the headlines in August and will be worth watching this month:
Trade continued to play foul in the stock market as both the United States and China put in place their latest tariff increases on each other’s goods effective Sep 1. The Trump administration raised tariffs from 10% to 15% on $112 billion worth of Chinese goods including footwear, apparel and Apple AAPL Watches, while China imposed retaliatory tariffs hike on some of American goods, including pork, beef, chicken and agricultural goods, on its $75 billion target list.
Trump plans to levy duties on further $160 billion in Chinese products such as laptops and cellphones in mid-December. China plans to ramp up tariffs on soybeans to 30% from 25% in mid-December.
Though the trade representatives from the world's two biggest economies are expected to resume talks this month, tariff hike will hurt U.S. consumers, pushing up the prices of goods and thereby curtailing spending. It will further impact worldwide economy and corporate profits, particularly at big U.S. exporters. As such, investors are rushing to a flight to safety in gold, which often acts as safe haven, benefiting gold-mining companies.
Harmony Gold Mining Company Limited HMY, with a Zacks Rank #2 and VGM Score of A, emerged as the winner in August, gaining about 41%. The Zacks Consensus Estimate for fiscal year (ending June 2020) has moved up from 41 cents to 47 cents over the past three months. The company has an estimated earnings growth rate of 235.71%.
The Federal Reserve cut interest rates by 25 bps to 2-2.5% in its latest policy meeting ended Jul 31 for the first time since the 2008 financial crisis. It also said that the move is a “midcycle adjustment” and not the start of a lengthy series of rate cuts. However, additional cuts seem to be in the cards this month given the rising trade spat, recessionary fears and bouts of downbeat economic data that is cooling global economic growth.
If the Fed cuts rate further, high-dividend-yield sectors such as utilities and real estate continued to be the winners given their sensitivity to interest rates. Some of the top-ranked stocks from these spaces include NRG Energy Inc. NRG, ONEOK Inc. OKE, City Office REIT Inc. CIO
and Ryman Hospitality Properties Inc. RHP. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead. Further, these stocks are expected to generate solid earnings growth this year (NRG – 67.6%, OKE – 11.5%, CIO – 14% and RHP – 15.9%). You can see the complete list of today’s Zacks #1 Rank stocks here.
August was the second-losing month of 2019 for Wall Street with the S&P 500 shedding 1.8%, the Dow Jones dropping 1.7% and the Nasdaq losing 2.6%. The Russell 2000 Index took the heaviest losses for the month, falling 5.1%. The brutal trading seen is August is expected to continue in September.
This is because September is historically the worst month for the stock market. According to Dow Jones Market Data, the Dow Jones Industrial Average and the S&P 500 since 1937 saw average declines of 1% each. The Nasdaq Composite, which was introduced in 1971, also dropped 0.5% on average. The declines are due to a seasonal phenomenon as investors are more prone to selling than buying when they return from their summer vacations, trading volume after Labor Day is mostly bearish, many mutual funds have fiscal years ending Sep 30, window-dressing is rampant, and investors generally sell stocks to pay tuition bills for their kids’ private schools and colleges.
Against such a backdrop, investors should consider low-beta stocks, which exhibit greater levels of stability and usually lose less when the market is crumbling. Dr. Reddy's Laboratories Ltd RDY, with a market cap of $5.94 and a beta of 0.21, could be a solid pick. The stock has an estimated growth rate of 25.6% for this fiscal year (ending March 2020). It has a Zacks Rank #1 and VGM Score of A.
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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
ONEOK, Inc. (OKE) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Dr. Reddy's Laboratories Ltd (RDY) : Free Stock Analysis Report
Harmony Gold Mining Company Limited (HMY) : Free Stock Analysis Report
Ryman Hospitality Properties, Inc. (RHP) : Free Stock Analysis Report
City Office REIT, Inc. (CIO) : Free Stock Analysis Report
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