5 Top Value Picks To Counter Recent Stock Market Softness
Zacks Investment Research | Jan 07, 2020 08:30PM ET
After an exponential rise in 2019, Wall Street has entered into a correction mode early this year, following the U.S. airstrikes in Iran that killed its military general Qasem Soleimani. After this development, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — declined 1%, 0.6% and 0.3%, respectively, in the last three trading days.
However, the stable economic fundamentals of the United States have raised the possibility of the recent stock market volatility being a transitory phase and markets continuing their long-term uptrend once the interim trade deal between the United States and China is signed mid-January.
While markets are likely to remain range bound until the signing of the phase-one trade deal, the downside potential will be limited owing to U.S. economic strength. Nonetheless, volatile trading may become a regular phenomenon in Wall Street. At this stage, it makes good sense to buy those stocks on the dip that could prove to be valuable once the rally resumes.
Geopolitical Conflict in Middle East Intensifies
On Jan 7, Pentagon confirmed that Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces at Al-Assad and Irbil military bases in Iraq. The airstrike was in retaliation to the U.S. killing of Iran’s immensely popular top-ranked general, Qasem Soleimani, on Jan 2. Moreover, on Jan 5, Iran announced that it would no longer respect the 2015 nuclear deal on the number of uranium enrichment centrifuges.
After the attack, Iranian Foreign Minister Mohammad Javad Zarif tweeted “we do not seek escalation or war, but will defend ourselves against any aggression.” Meanwhile, President Donald Trump tweeted that “All is well! Missiles launched from Iran at two military bases located in Iraq.”
Earlier, Trump had tweeted that the U.S. government has targeted 52 sites very important to Iran and Iranian culture, if that country retaliates and strikes any “Americans, or American assets.” Investors remained busy judging how the U.S.-Iran conflict will affect stock markets.
Volatility resurfaced in Wall Street in the last three trading days as market participants shifted to safe haven assets such as U.S. government bonds, precious metals like gold and currency like Japanese yen. Meanwhile, crude oil prices have skyrocketed in apprehension of a potential oil supply disruption. Higher oil prices will hinder the economic revival process of several important emerging markets.
Interim Trade Deal and Solid Economic Data: Major Drivers
Chinese officials are set to arrive in Washington on Jan 13 in order to sign an interim trade pact known as the phase-one trade deal. Last week, Donald Trump said that he will sign the preliminary trade deal on Jan 15. The deal is expected to at least prevent further escalation of tariff war between the two largest trading countries of the world.
Get The News You Want
The Institute for Supply Management reported that the U.S. services (non-manufacturing) index jumped to a four-month high of 55% in December from 53.9% in November. The figure was higher than the consensus estimate of 54.2%. Notably, the services sector constitutes 70% of the GDP. Any reading above 50 indicates expansion of service activities and a reading of 55 or more reflects exceptional performance.
The Department of Commerce reported that the U.S. trade deficit declined sharply by 8.2% to $43.1 billion in November, marking the smallest deficit since October 2016. Exports grew 0.7% to $208.6 billion in November while imports dropped 1% to $251.7 billion.
Our Top Picks
At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. Thus, it would be prudent to pick up value stocks with a favorable Zacks Rank.
We have narrowed down our search to five stocks. Each of them carries a Zacks Rank #1 (Strong Buy) and has a Original post
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