Zacks Investment Research | Jul 01, 2019 08:31AM ET
It has been a superb year for equities so far, with the S&P 500 seeing the best first half in 22 years. It’s all because of Fed’s abrupt reversal of a plan to raise rates, followed by strong signals to trim rates in the near future. And with the United States and China agreeing to pause their tariff war, things are rosier for the stock in the second half.
Given the bullishness, it seems prudent to invest in stocks that can make the most of the market’s upward journey.
Best June in Decades, Strong First Half
Wall Street recorded its best June in a decade. The broader S&P 500 has risen 17% so far this year, displaying its best first-half performance since 1997. The S&P 500 also registered its best June since 1955, rising 6.89%. The Dow also recorded its best first half since 1999 and best June since 1938. Tech-heavy Nasdaq did not lag behind. The index posted its best June since 2000.
So, what’s behind this stellar performance? The apparent shift in Fed’s stance over interest rate cuts has helped the stock market reach record highs and defy odds, including trade war jitters, a slowdown in global economy, a partial government shutdown and lackluster corporate earnings.
The Fed did keep rates steady but gave indications of a cut in the near term if the global economic outlook doesn’t improve. After all, prolonged trade issues between the United States and its trading partners have raised concerns about global economic growth. By the way, the long-term interest rates are currently lower than short-term interest rates, which is a tell-tale sign that recession is imminent.
Needless to say, stocks tend to rise in an environment when rates decline as it eventually leads to cheaper borrowing costs for both corporate houses and individuals. What’s more, U.S. consumer spending increased moderately in May giving hopes that the Fed will trim rates.
It’s also worth pointing out that the stock market rally was sparked by European Central Bank President Mario Draghi, who said that ECB will roll out fresh stimulus to boost the Eurozone economy in its next policy meeting in July.
And if we look at individual sectors, tech stocks have gained immensely. In fact, high tech dominance during the several years of the bull market made headlines, with Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) overshadowing legacy names like General Electric (NYSE:GE), Walmart (NYSE:WMT) and Exxon (NYSE:XOM). Many of these tech behemoths quite successfully overcame regulators and politicians scrutiny over the past several months.
Market Has More Room to Run in 2H
Wall Street is expected to gain traction in the second half of this year as well. And why not? Steady job addition and wage growth continue to boost consumer outlay. Most importantly, the recent resolution of the trade war that dissolves business uncertainty could improve demand for new equipment and factories.
President Trump and China’s Xi Jinping have agreed to a tariff war cease-fire. Trump categorically mentioned that the additional tariffs he threatened to impose on billions of dollars of Chinese goods will not be implemented for the “time being.” Trump confirmed that relation with China is “right back on track” during his lengthy meeting with Xi in the G20 summit in Osaka.
And when it comes to July, in particular, the stock market tends to experience the so-called summer rally. As a matter of fact, July is the best of the worst months (May-October) in a year.
Also, July’s first trading day is the most bullish day of the year. The S&P 500 has been up 84.2% of the time since 2000, and has gained on average 0.35%. The Dow and the Nasdaq have also been up 79% and 74% of the time, respectively.
5 Solid Choices
With equities set to gain, it makes sense to invest in stocks that are fundamentally strong enough to cash in on the uptrend throughout this year. We have, thus, zeroed in stocks that have a Zacks Rank #1 (Strong Buy) and a Zacks Investment Research
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