5 Must-Buy Stocks This Week On Q2 Earnings Despite Volatility

Wall Street witnessed severe volatility last week (ended Aug 2) following a less than-expected dovish stance taken by the Fed and President Donald Trump’s tweet expressing desire to impose 10% tariff on a new set of $300 billion Chinses goods effective Sep 1. Trump further said that the tariff rate could go up to 25% later if required. These two factors brought an end to the fabulous bull run, which started in early June.

Consequently, all three major stock indexes ---- the Dow, the S&P 500 and the Nasdaq Composite ---- plunged 2.6%, 3.1% and 3.2%, respectively, for the week. While both the S&P 500 and the Nasdaq Composite witnessed their biggest weekly decline since Dec 21, 2018, the Dow saw the biggest weekly decline since May 31 as well as its second biggest weekly decline for the year so far.

However, second-quarter 2019 earnings results have so far come in better than expected. At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank and positive Earnings ESP. Strong earnings results will likely ensure a northbound move of stock prices of these companies in the near term despite market volatility.

Trade and Fed Let Wall Street Down

As a result of more than a year-long trade war, the United Sates has already levied 25% tariff on $250 billion Chinese exports while China has reciprocated with 25% tariff on $110 billion U.S. goods. So far, the U.S. government has imposed tariff on intermediary goods to be used by U.S. corporates to develop high-tech products.

President Trump posted his tweet on Aug 1, just a day after Fed reduced the benchmark leading rate by 25 basis points to the range of 2-2.25%. Fed Chair Jerome Powell said that this rate cut is to “insure against downside risks,” and there was no signal that this is the start of a lengthy rate cut cycle. This comment significantly dented market participants hope looking for one or two more cuts.

Meanwhile, the U.S. government sources revealed that 68% of the new Chinese goods, which will face the latest tariffs, will be either on consumer goods or auto parts. This is likely to severely dent consumer confidence besides gradually deteriorating business confidence. Several economists believe that the central bank may need to cut rate one or two more times after Trump’s tweet.

Better-Than-Expected Second-Quarter Earnings Results

As of Aug 2, 388 S&P 500 members reported second-quarter earnings results. Total earnings for these 388 index members are up 0.8% from the same period last year on 4.3% higher revenues. Notably, 76.8% companies surpassed EPS estimates while 57.7% beat revenue estimates.

At present, total second-quarter earnings for the S&P 500 Index are expected to be down 0.1% from the prior-year period on 4.5% higher revenues. This is a massive improvement over an earnings decline of 3.4% on 3.9% higher revenues, expected nearly a month ago. Notably, Wall Street had witnessed negative earnings (0.2% earnings decline on 4.5% higher revenues) in the first quarter for the first time since the second quarter of 2016. (Read More: Zacks Investment Research

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Written By: Zacks Investment Research