5 Top Dow Stocks To Buy On The Dip For A Stronger Portfolio

Wall Street rally, which started in the last week of August, faded in the last five trading sessions owing to uncertainty over an interim trade deal between the United States and China, global economic slowdown, political issues like the initiation of an impeachment process against President Donald Trump by the Democrats.

As the stock market volatility continues, the Dow 30 Index –- popularly known as the stock market’s blue-chip index –- is showing fluctuations. However, a closer look into the index reveals a different picture. Some members with a favorable Zacks Rank provide strong growth potential. Consequently, it will be a good idea to add these stocks to your portfolio at the moment.

Dow Still in the Green Despite Fluctuations

Just like Wall Street, the Dow is feeling the weight of intensifying trade conflict between the United States and China this month. The index is showing regular fluctuations for two weeks.

The blue-chip index lost 1.1% in last five trading days. On Sep 24, the index lost 141.81 points or 0.5%. However, the index is currently less than 2.1% below the all-time closing high of 27,359.16 that it set on Jul 15, 2019.

On Sep 24, the Dow closed at 26,806.18 well above its 50-day and 200-day moving averages of 26,600.35 and 25,770.79, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered as long-term trend setter.

It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.

Despite severe market volatility, the Dow is still in positive territory with a gain of 14.9% year to date. This is an excellent performance after a disappointing 2018 in which the blue-chip index lost nearly 6%. Moreover, 19 components of the 30-stock index have given double-digit returns so far this year.

Near-Term Catalysts for the Dow

A fundamentally stable U.S. economy, which is growing for the historically longest 11 years, albeit with some loss in pace and a dovish monetary stance adopted by the Fed in 2019 are the two major drivers of the Dow. Furthermore, the government bonds yield curve has steadied in September after staying inverted for a large part of August. This has eliminated the fear of an impending recession.

U.S. consumer spending remained strong and the labor market remained firm with steady wage growth. Of let, several economic data have indicated a slow turnaround in U.S. manufacturing, which was hit hard due to the lingering tariff war with China.

Meanwhile, Fed has reiterated several times that it will whatever is necessary to support U.S. economic expansion. Already the central bank has reduced the benchmark interest rate by 50 basis points in two traches after 11 long years. Boyed by Fed’s assurance, market participants are expecting at least one more rate cut of 25 basis points within this year.

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Our Top Picks

At this stage, it will be prudent to invest in Dow stocks with a favorable Zacks Rank and strong dividend yield, which will act as a regular income stream to investors. Therefore, these stocks will likely benefit from both market rally and attractive dividend. We have narrowed down our search to five such stocks, each carrying a Zacks Rank #2 (Buy). You can see Zacks Investment Research