5 Top Stocks To Buy On A Strong U.S. Services Sector
Zacks Investment Research | Sep 06, 2019 07:14AM ET
On Sep 5, U.S. markets rose sharply on fresh hopes that the country would return to the negotiating table with China. The two countries are involved in a long-running trade dispute which has roiled China’s economy and dealt severe damage to the U.S. farming and manufacturing sectors.
So what’s keeping the domestic economy afloat even as a trade deal remains elusive? While the U.S. consumer remains confident, fresh economic data indicates that the service sector is prospering while the rest of the economy is grappling with the trade war. This is why it makes sense to invest in service sector stocks at this time.
ISM Services Index Surges in August
In August, the Institute of Supply Management’s services gauge rebounded from a three-year low of 53.7% in July to hit 56.4% in August. Of the 17 industries that the ISM tracks, 16 experienced expansion during the month. An executive being interviewed for the survey went so far as to say that the “summer doldrums appear to be over.”
Incidentally, any level above 50 is a good economic sign. And a reading above 55 is believed to be nothing short of exceptional. Both production and new orders notched up strong gains over the month, exceeding the 60% mark. This is a clear indication that demand remains resilient given the hope that sales will improve in the months to come.
Other Indicators Reflect Services’ Strength
Several other major economic gauges also indicate that services are keeping the economy afloat even as the American industry grapples with the fallout of the trade war. The Fed’s latest Beige Book survey reveals that as of August, non-financial services were improving or staying steady through the United States.
Even as manufacturing and agriculture remain major worries for the economy, most business owners “remain optimistic about the near-term outlook.” And this sentiment prevails despite the fact that uncertainty over U.S.-China trade relations continues to roil investor sentiment almost on a daily basis.
Meanwhile, the latest ADP (NASDAQ:ADP) report showed that private sector firms added the highest number of jobs in four months in August. Payrolls advanced by 195,000 following a downwardly revised increase of 142,000 in July. Service providers led job gains, adding 18400 positions in August.
Our Choices
Despite long-running trade war concerns, the U.S. economy remains in a relatively good shape. This is largely attributable to the services sector, since manufacturing and agriculture are bearing the brunt of trade tensions.
This is why investing in service sector stocks remains a prudent choice. However, picking winning stocks may be difficult.
This is where our Zacks Investment Research
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