Fears Of Far-Reaching Economic Slowdown Diminish: 5 Picks

The U.S. economy did slow down sharply toward the end of 2018 and in early 2019. However, as spring approaches, signs of growth have started to emerge. While U.S. factory activity regained lost ground in March, the service industry expanded steadily. Construction business too rebounded in early 2019 after a tough spell toward the end of 2018.

Most importantly, encouraging service sector figures from Europe and China along with increasing optimism in U.S.-China trade negotiations ebbed fears of a global economic downturn. Thus, it’s time to invest in solid stocks that are likely to make the most of the bullish economic situation.

U.S. Economy is in Sound Shape

Both the Institute of Supply Management (ISM) surveys of manufacturing and service industry reported steady growth in March. American manufacturing rebounded last month after taking a beating in the prior month. According to the ISM, its manufacturing index came in at 55.3% last month from 54.2% in February.

However, the latest reading can be termed as normal growth rather than unusually strong growth. After all, the 12-month average is still at the lowest since May 2017. Nonetheless, employment rebounded strongly, indicating that the manufacturing index’s comeback has been primarily backed by domestically-focused activities. At the same time, 16 of the 18 U.S. manufacturing industries surveyed by ISM expanded in March.

Service-oriented companies like banks, retailers and tech service providers to name a few expanded last month at the slowest pace in 19 months but most of the top executives remained optimistic about the U.S. economy. And why not? Even though the ISM non-manufacturing index slipped to 56.1% last month from February’s 59.7%, it still remains above the 55% mark, which is considered exceptional. To top it, 16 out of the 18 service industries tracked by ISM did expand. Chief U.S. economist Jim O’Sullivan of High Frequency Economics chipped in and said that the “data are consistent with moderate rather than dramatic slowing in the economy.”

Builders, by the way, boosted construction in February for the third month in a row, a tell-tale sign that the U.S. economy is in the pink. Per the Census Bureau, construction outlays increased 1% in February. And let us not forget that such outlays had increased 2.5% in January. In fact, the pace of construction activities in the first two months of this year turned out to be the strongest since last summer.

Though the economic picture in the United States is hunky dory, what about the global economy? After all, a global economic slowdown will have serious implications on the state of the U.S. economy as well. Growth in Eurozone’s service sector came in better than expected in March, with Germany, Spain and Ireland leading the way. Also, China’s service sector hit the fastest pace in 14 months last month.

Service Sector Data from Europe & China Promising

For the single currency bloc, the services purchasing managers’ index (PMI) increased to 53.3 in March, up from 52.8 in February, and touched the highest level since November 2018. Remember, any reading above 50 indicates growth. This reading, by the by, surpasses analyst’s expectations of a score of 52.7, which undoubtedly gives you a comprehensive picture about the health of the Eurozone economy.

Coming to China, the Caixin Chinese services business activity index rose to 54.4 in March from 51.1 in February, recording the fastest rise since January 2018. Beijing had introduced a series of measures including cutting taxes to help support its economy. And the latest service sector reading shows that such measures have paid off!

Progress on U.S.-China Trade Talks

On the political side, both U.S. and Chinese trade officials have begun talks to bring an end to their prolonged trade dispute. Myron Brilliant, executive vice-president of international affairs at the U.S. Chamber of Commerce recently said that “ninety percent of the deal is done, but the last 10% is the hardest part, it’s the trickiest part and it will require trade-offs on both sides.”

Nonetheless, resolving most of the differences is a reassuring sign for the global economy. Needless to say, these economies imposed billions of dollars of tariffs on each other’s goods over the past year, battering equity markets, souring business and consumer sentiment as well as hampering economic growth.

5 Solid Bets

Optimism about trade negotiations and positive economic numbers from the United States, Europe and China have reduced concerns of an across-the-board economic slowdown. Hence, it will be prudent to invest in five of the best fundamentally solid stocks that can make the most of this favorable economic scenario. Such stocks have a Zacks Rank #1 (Strong Buy) and a Original post

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Written By: Zacks Investment Research