Wall Street saw its best start to a year in decades and the sharpest gains in April in about 10 years. The latest milestones were achieved mostly due to a more accommodative Fed and a slew of positive economic reports. Apple’s rally following upbeat earnings results eased worries about the first-quarter earnings outlook, while increasing optimism in U.S.-China trade negotiations helped drive recent gains.
The Dow Jones Industrial Average witnessed its best four-month start to a year since 1999, while the broader S&P 500 saw the best start since 1987. The indexes recouped losses incurred in the final months of 2018, when fears of a global recession sent markets sliding.
Fed Rules Out Immediate Rate Hike
The Federal Reserve recently left key interest rates unchanged and Fed Chair Jerome H. Powell stressed that the central bank will continue to stay patient with rate hikes. Fed adopted a cautious stance this year mostly due to inflation remaining short of the committee’s 2% target.
The Fed’s preferred price gauge, the so-called core PCE index, was up 1.6% on a year-over-year basis in March, the slightest increase since January 2018. The broader PCE index, in the meanwhile, rose 0.2% in March compared to the previous month and jumped 1.5% from a year ago.
Nonetheless, Fed’s views were widely considered as accommodative, at least for the time being, and should have a soothing effect on investors. After all, the Fed’s rate increase last year had taken a toll. This is because hike in rates increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy.
Economy in Sound Shape
Talking about the U.S. economy, GDP for the January-March period expanded at a 3.2% annual pace, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase.
To top it, Americans are now feeling more optimistic about their conditions. The key economic indicator that measures attitudes on future economic prospects came in at 129.2 in April and exceeded analysts’ expectations of a 126.9 reading. At the same time, both the future expectations and present situations index remain near their highest levels in a decade.
Some other recent reports also point to signs of strength. March retail sales’ surprise jump of 1.6% does indicate that consumer spending will eventually improve and that a proxy for business investment has risen sharply. Headline durable goods orders expanded 2.7% last month, easily surpassing estimates. In fact, durable goods orders grew at the fastest pace in seven months.
Buoyant Earnings Results
Dow component Apple Inc. AAPL, in the meanwhile, was in the spotlight after the iPhone maker beat expectations for the first quarter. Apple revealed that the worst is over for its China business and that its service business is picking up, which analysts see as key to Apple’s growth.
Apple’s results helped ease worries about the earnings outlook for Wall Street even though Google-parent Alphabet Inc GOOGL tumbled in the wake of revenue miss. Total earnings for the 313 S&P 500 members that have reported first-quarter results are already up 0.1% on 3.8% higher revenues, with 78.0% beating earnings estimates and 61.0% beating revenue estimates (read more: Making Sense of Tech Sector Earnings).
U.S.-China Trade Optimism
Both the United States and China are nearing the finish line of a trade dispute. Negotiators have made headway on contentious issues, including access to key markets and how to roll back penalizing tariffs.
The progress in talks is indeed encouraging! After all, these economies imposed billions of dollars of tariffs on each others’ goods over the past year, battering equity markets, souring business and consumer sentiments as well as hampering global growth.
First Four-Month Scorecard: Top 5 Gainers
Courtesy of a dovish Fed, healthy economic growth, growing earnings and optimism over U.S.-China trade deal, the stock market posted its best four-month start to a year. We have, thus, highlighted five stocks that have made the most of this record start, and are fundamentally strong enough to gain in the long run as well. We have zeroed in on companies that sport a Zacks Rank #1 (Strong Buy) and have 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.
Sunworks, Inc. SUNW provides photo voltaic based power systems for the agricultural, commercial, industrial, and residential markets. The Zacks Consensus Estimate for its current-year earnings have increased 100% in the past 60 days. The company’s expected earnings growth for the current quarter is 57.1% against the Solar industry’s projected decline of 286.6%. The stock has given a stellar return of 354.2% in the January-April period.
Limbach Holdings, Inc. LMB provides commercial specialty contract services in the United States. The Zacks Consensus Estimate for its current-year earnings has risen 31.7% in the past 60 days. The company’s expected earnings growth for the current quarter is 85% against the Building Products - Maintenance Service industry’s estimated decline of 3.2%. The stock has yielded a superb return of 147.3% in the January-April period.
Fuel Tech, Inc. FTEK provides boiler optimization, efficiency improvement, and air pollution reduction and control solutions to utility and industrial customers. The Zacks Consensus Estimate for its current-year earnings has moved more than 100% up in the past 60 days. The company, which is part of the Pollution Control industry, is expected to notch 100% earnings growth in the current as well as next quarter. The stock has given a solid return of 121% in the January-April period. You can see the complete list of today’s Zacks #1 Rank stocks here.
Herc Holdings Inc. HRI operates as an equipment rental supplier primarily in the United States and internationally. The Zacks Consensus Estimate for its current-year earnings has climbed 6.9% in the past 60 days. The company’s expected earnings growth for the current quarter is 22.2% against the Building Products - Maintenance Service industry’s projected decline of 27.5%. The stock has given an encouraging return of 85.3% in the January-April period.
Stifel Financial Corp. SF provides retail and institutional wealth management, and investment banking services. The Zacks Consensus Estimate for its current-year earnings has increased 5.6% in the past 60 days. The company’s expected earnings growth for the current quarter is 9.8% against the Financial - Investment Bank industry’s projected decline of 6.9%. The stock has returned a promising 44.1% in the January-April period.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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