4 Stocks To Buy As S&P 500 Hits 2-Month High

The S&P 500 logged its highest one-day gain in percentage terms since Mar 11 on Tuesday. Technology and financial stocks propelled the S&P 500 higher as all 10 of the index’s sectors ended the day in the green. A strong comeback for sectors which have suffered losses through most of the year was the most notable event of the day.

Rising fuel prices, strong economic data and a change in the manner in which investors perceive a possible rate hike seem to be fuelling these gains. This implies that concerns that were weighing on investors for quite some time now have dissipated. Picking technology and financial stocks from the S&P 500 looks like a prudent move at this time.

Rate Hike Fears Fall, Financials Set to Gain

Markets were gripped with fear following the release of Federal Open Market Committee’s (FOMC) minutes on May 18. But last Friday, a change in perception among investors was clearly perceptible as benchmarks ended higher despite speculations that a Fed rate hike in June was most likely. This is because a data dependent Fed has shown keenness in making such a move due to encouraging economic data, something which investors have begun to latch on.

Tuesday marked the release of record new home sales data, which increased by 1.6% from March to 619,000 in April, settling at its highest level since Jan 2008. This report came on the heels of a number of positive economic indicators. This led investors to react positively with tech and financial stocks leading the markets to close in the green.

Financials are a sector which will immediately benefit from a rate hike. The Financial Select Sector SPDR (XLF) and the Financial Services Select Sector SPDR (XLFS) have lost 1.2% and 2.5% year to date, respectively. But, on Tuesday, XLFS and XLF increased 1.7% and 1.5%, respectively. Over the last five days the XLF and XLFS have gained 2.9% and 3.4%, respectively.

Tech Stocks Stage Strong Rebound

Meanwhile, the Technology Select Sector SPDR (XLK) increased 1.9% and was the biggest advancer among the S&P 500 sectors during Tuesday’s session. XLK has gained 1.6% up to now in May after a spate of poor earnings numbers from big tech names dragged down the sector last month. Under par results from Alphabet Inc. (NASDAQ:GOOGL) , Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) were among the major disappointments last month on the tech stock front.

However, as the earnings season draws to a close, it seems the tech sector’s results have outperformed the broader index. Currently, we have Q1 results from 96.3% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are down 5.4% while revenues have gained a slender 0.8%, with 67.3% beating EPS estimates and 56.4% topping revenue estimates.

Excluding the Apple drag, total earnings for the rest of the sector would have been up 0.8%. In contrast, 480 S&P 500 members that have reported results with estimates for the still-to-come 20 members, total Q1 earnings are currently expected to be down 6.6% from the same period last year on 1.1% lower revenues.

Additionally, revenues for Facebook, Inc. (NASDAQ:FB) increased 52% in the first quarter and its shares have gained more than 6% over the last month. Shares of cloud computing company salesforce.com, inc. (NYSE:CRM) have gained 8.2% over May up to now after experiencing double-digit revenue growth across all its divisions. A recovery from Apple has also boosted the sector’s odds of success.

Shares of iPhone maker had declined after it reported its first quarterly decline in revenues in nearly 13 years. However, the company has made a recovery after Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRKa) Zacks Investment Research

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Written By: Zacks Investment Research