U.S. stocks not only suffered their worst week in more than two years but are also on the brink of logging the worst March. Trump-China trade war rhetoric is threatening global economic growth, while a tighter monetary policy is about to hinder the bull run that began almost a decade ago.
A third party firm improperly keeping Facebook, Inc. FB users’ data also raised fears of restrictive regulations in the technology sector. This in turn disrupted tech’s growth trajectory, which for long helped the broader market scale north.
With the markets going through a rough patch, investing in stocks that provide excellent risk-adjusted returns seems judicious.
Stocks to Face Worst March
It has been a rough month for the broader market. The Dow Jones is on the verge to see its worst March after it had tanked 8.97% almost 40 years back, per the WSJ Market Data Group. In fact, the blue-chip gauge lost more than 1,400 points over the last five trading sessions, marking the index’s steepest weekly percentage loss since 2016.
The broader S&P 500 is also on the brink of its ugliest March in 17 years, when it had slumped 6.4%. The benchmark index turned negative for the year and is around 10% below its all-time high hit earlier this year. In addition, the tech-laden Nasdaq will witness an excruciating March decline since 2001. Meanwhile, Wall Street’s so-called fear-gauge, the Cboe Volatility Index, soared 57% last week, well above its long-term average of 20. This invariably shows that bearish bets continue to outdo their bullish counterparts in the indices so far this month.
But, what has triggered such a selloff leading to U.S. stocks ending in their worst week in years?
Restrictive Trade Policy, Rising Interest Rates
Selling in stocks intensified after the Trump administration announced that it will levy tariffs on tens of billions of dollars of Chinese imports on top of imposing duties on foreign steel and aluminum. In response to Trump’s tariffs, Beijing said that it will target 128 U.S. products with an import value of $3 billion. These products mostly include U.S pork, fresh fruit, dried fruits, steel pipes, modified ethanol, ginseng and wine.
Such heated trade rhetoric doesn’t bode well for the American economy. If a full-fledged trade war takes place, the United States might slip into a recession in the near future and the jobless rate might more than double from current levels. Tariffs on the U.S. will lead to rise in inflation along with an uptick in import prices, provoking the Fed to hike rates. And we all know that easy monetary policy so far has helped the U.S. stock market celebrate its nine-year bull run. Investors had piled up on U.S. stocks with the notion that quantitative easing will help the domestic economy grow at a better rate than emerging economies like China.
Fed, by the way, has tightened its monetary policy. At the conclusion of the FOMC meeting on Mar 21, Jerome Powell-led Federal Reserve hiked interest rates by a quarter-percentage point and projected a steeper path of rate hikes in 2019 and 2020. The vote to lift the benchmark lending rate was a unanimous 8-0. Thus, the broader market might keep falling as long as the Fed continues to remain hawkish.
The Facebook Fiasco
Adding to the downbeat tone is a sharp selloff in the technology sector. Investors remained concerned about tighter regulations for large tech companies. Lest we forget, tech shares have gained the most so far this year.
However, the sector took a beating following the backlash over Facebook’s handling of user data. Everyone raised questions as to how Cambridge Analytica, which worked on Trump’s election campaign, had gained access to personal data on roughly 50 million Facebook users without their knowledge. Facebook shares saw a weekly decline of 14%, the biggest since 2012. Other tech behemoths, including Apple and Google-parent Alphabet, lost more than 7% in the week.
Time to Buy 5 Ultra-Safe Stocks
As March is plagued by fears of a trade war, rising rates and data mining scandal, investing in low-risk assets and a combination of parameters that lead to better returns seems judicious.
The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1. These stocks are also dividend payers which boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. Further, they boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
CenterPoint Energy, Inc. CNP operates as a public utility holding company in the United States. The company has a Zacks Rank #2 and a beta of 0.57. The company has a dividend yield of 4.2%, while its five-year average dividend yield is 5.8%. The Zacks Consensus Estimate for its current-year earnings rose 5.4% in the last 60 days. The company is expected to return 13.1% this year, higher than the industry’s estimated return of 4.2%.
Dine Brands Global, Inc. DIN owns, franchises, operates, and rents full-service restaurants in the United States and internationally. The stock has a Zacks Rank #1 and a beta of 0.1. The company has a dividend yield of 3.9%, while its five-year average dividend yield is 15.9%. The Zacks Consensus Estimate for its current-year earnings rose 34.7% in the last 60 days. The company is expected to return 22.7% this year, higher than the industry’s projected return of 10.7%.
Pfizer Inc. PFE discovers, develops, manufactures, and sells healthcare products worldwide. The stock has a Zacks Rank #2 and a beta of 0.91. The company has a dividend yield of 3.9%, while its five-year average dividend yield is 7.2%. The Zacks Consensus Estimate for its current-year earnings rose 6.9% in the last 60 days. The stock is likely to return 11.7% this year, higher than the industry’s estimated return of 9.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nordstrom, Inc. JWN is a fashion retailer that provides apparel, shoes, cosmetics, and accessories for women, men, young adults, and children in the United States and Canada. The company has a Zacks Rank #2 and a beta of 0.81. It has a dividend yield of 3.2%, while its five-year average dividend yield is 6.4%. The Zacks Consensus Estimate for its current-year earnings rose 9.3% in the last 60 days. The company is expected to return 15.5% this year, higher than the industry’s estimated return of 12.3%.
Southside Bancshares, Inc. SBSI operates as the bank holding company for Southside Bank that provides a range of financial services to individuals, businesses, municipal entities, and nonprofit organizations. The stock has a Zacks Rank #2 and a beta of 0.77. The company has a dividend yield of 3.3%, while its five-year average dividend yield is 12%. The Zacks Consensus Estimate for its current-year earnings rose 10.7% in the last 60 days. The stock is expected to return 31.2% this year, higher than the industry’s projected return of 18.4%.
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CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
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