Global Markets Gain On Stimulus Hope: 5 Top Growth Picks

On Aug 19, stock markets across the world rallied following news of a new series of stimulus likely to be injected by several large economies. As of now, investors are highly concerned about an impending global economic slowdown particularly due to the trade-related conflict between the United States and China, and a sharp manufacturing sector downturn in the Eurozone. Several geopolitical issues like Brexit, and the Iran and Hong Kong unrests worsened the situation.

However, yesterday, Wall Street rallied for the third consecutive day. In these three days, major stock indexes -- the Dow, the S&P 500 and the Nasdaq Composite -- climbed 2.6%, 2.9% and 3%, respectively. On Aug 19, China’s CSI 300 Index gained 2.1%, pan-European Stoxx Europe 600 rose 1.1%, Japan’s Nikkei 225 grew 0.7% and Hong Kong’s Hang Seng Index advanced 2.2%.

China to Reform Interest Rates

On Aug 17, the People’s Bank of China, the country’s central bank, unveiled a new mechanism to improve establishment of the loan prime rate (LPR) from this month. The new LPR quotations will be based on rates of open market operations, which the national interbank funding center will establish on the 20th day of every month. The new strategy will be part of the People’s Bank of China’s broader market reforms to lower interest rates further.

Germany and ECB to Inject Stimulus

On Aug 18, German Finance Minister Olaf Scholz said that the government is expected to inject $55 billion in the economy if the situation worsens. Notably, Germany’s GDP contracted 0.1% in the second quarter of 2019, signaling a possible recession in the near term.

The highly export-oriented German economy is suffering China, one of its prime customers, has cut its imports due to its trade tussle with the United States. This has resulted in a slowdown in domestic manufacturing, which is the major contributor to the country’s GDP.

The European Central Bank (ECB), in its last meeting at Frankfurt on Jul 25, gave hints of a new set of stimulus in September. The ECB president Mario Draghi reiterated that the main refinancing rate at zero and the deposit rate at minus 0.4% will remain either stable or could be lowered at least up to the first half of 2020. More stimulus is likely to be provided in September in order to boost the Eurozone inflation rate, which stood at a mere 1% in July.

U.S. May Follow Suit, Fed in Focus

On Aug 18, in an interview with the Fox News Network, U.S. economic adviser Larry Kudlow said that the Trump administration is looking at its mid-term election promise of reducing income tax by 10% middle-income earners. Moreover, the U.S. government is also considering a proposal by Senetor Rick Scott for additional tax cut to offset the negative impact of tariffs on Chinese goods.

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Importantly, market participants are waiting for Fed Chair Jerome Powell’s upcoming lecture scheduled on Aug 23 at the central bank’s economic policy symposium in Jackson Hole, WY, to get a feeling of the central banks’ attitude about a second rate cut in September.

Notably, the Fed reduced the benchmark lending rate by 25 basis points in July for the first time in more than a decade. However, market participants are looking for more cuts as the situation worsened in August. Per CME FedWatch, as of Aug 19, 95% of respondents expected a rate cut of 25 basis points while 5% forecast a rate cut of 50 basis points in September.

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 strong growth potential will be lucrative. Our selection is backed by a Zacks Investment Research

Written By: Zacks Investment Research