5 Top Growth Stocks For September To Ride On Market Rally

Good news from both economic and political fronts poured into Wall Street in the first week of September after a disappointing August. Renewed enthusiasm on U.S.-China trade talks, ease in geopolitical concerns, strong U.S. economic data and a high-probability of a second rate cut by Fed this month are likely to drive Wall Street’s rally, which stared from the last week of August barring some minor fluctuations.

Fresh Initiatives for U.S-China Trade Talks

On Aug 5, China’s Ministry of Commerce informed that Liu He, its top negotiator on trade, had a telephonic discussion with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to reopen the trade-related negotiation. The two sides have agreed to hold the next round of meeting at Washington, D.C. early next month for which preparatory consultations will start from mid-September.

Notably, this will be the 13th round of meeting between the two largest trading nations of the world in the last 18 months. Negotiations failed to achieve any fruitful result on the previous 12 occasions and tariff war flare up after every failed meeting.

However, Hu Xijin, editor-in-chief of the Global Times and an insider of the Chinese authority tweeted that “There’s more possibility of a breakthrough between the two sides,” this time. Meanwhile, the U.S. administration has confirmed the phone call but not the October meeting.

Geopolitical Concerns Ebb

On Sep 4, Carrie Lam, CEO of Hong Kong announced the withdrawal of the extradition bill, which the Chinese government tried to impose. This resulted in more than three months of vigorous protests for democracy leading to fear of a major financial breakdown among global investors community. Notably, Hong Kong is the financial hub of Asia and its closed proximity with the Eurozone may result in a global financial crisis.

On Aug 4, the U.K. parliament rejected prime minister Boris Johnson’s call for a snap poll next month to pave the way for a no-deal Brexit. Britain in scheduled to leave the European Union by Oct 31, with or without a deal. Most of the British parliamentarians are of the view that the exit date should be extended to explore options of a Brexit deal.

Strong Economic Data

On Aug 5, the Institute of Supply Management (ISM) reported that the U.S. Services (non-manufacturing) PMI (purchasing manager index) jumped to 56.4% in August from 53.7% in July, which was the lowest reading since August 2016. The consensus estimate was for 54.2%. Notably, any reading above 50% indicates expansion of the services sector, which constitutes more than 70% of U.S. economic activities.

The Department of Commerce reported that new orders for U.S factory-made goods (both durable and non-durable) climbed 1.4% in July compared with 0.5% in June and above the consensus estimate of 1%. New orders for manufactured durable goods increased 2% in July compared with 1.8% in June.

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On Aug 15, the Department of Commerce reported a 0.7% jump in retail sales in July compared with 0.3% in June and the consensus estimate of 0.2%. Moreover, core retail sales (excluding sales at auto dealers and gasoline stations) increased 1% in July, surpassing June’s rise of 0.3% and the consensus estimate of 0.4%.

Fed Likely to Cut Rate Again

Despite strong economic data, the market has assigned a high chance for the Fed to reduce the benchmark leading rate again in September after doing the same in July, for the first time in 11 years. The U.S. manufacturing sector, which accounts for 12% of the GDP, is facing weakness due to the ongoing tariff war.

The ISM reported two days ago that U.S. manufacturing contracted in August and business confidence slackened to a large extent. Additionally, inflation remained muted at 1.4% in July, far below the central bank’s target rate of 2%.

All these negatives are likely to compel the Fed to cut rate again this month. At present, the CME FedWatch has assigned 95% probability of a 25 basis-point cut and 5% chance of a 50 basis-point rate cut.

Our Top Picks

The U.S. economy is likely to maintain its long-term growth albeit at a slow pace. Several stimulus measures across the globe will also help the U.S. economy to remain stable. At this stage, investment in stocks with a strong growth potential will be lucrative. Our selection is backed by a Zacks Investment Research

Written By: Zacks Investment Research