Major Stock Indexes Heading For Milestones: 5 Top Picks

Wall Street seems to be carrying on from where it left off in 2019, with the bull run showing no signs of relenting despite the coronavirus outbreak. All three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — look unstoppable in their northbound movement. A stable U.S. economy, an accommodative Fed and better-than expected corporate earnings and guidance is only going to add fuel to the momentum.

Indexes Approaching Milestones

Despite short-term fluctuations on account of some geopolitical issues or the outbreak of coronavirus in China, all three major stock indexes achieved several fresh highs this year. In fact, the benchmark S&P 500 has recorded 14 highs so far this year.

On Fed 19, the S&P 500 — popularly recognized as stock market’s barometer — closed at a fresh high of 3,386.15. The index is 3.4% away from an important technical barrier of 3,500. Likewise, the tech-heavy Nasdaq Composite also posted a new closing high of 9,817.18. The tech-laden index just needs 1.9% more to cross the psychological barrier of 10,000. Meanwhile, the blue-chip 30 stocks Dow ended at 29,384.03 – just 0.6% behind its all-time high level recorded on Feb 12. Moreover, the Dow is 2.1% away from the crucial technical milestone of 30,000.

Notably, all three indexes are currently well above their 50-day and 200-day moving averages. In finance, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered for the long-term trend.

Further, 50-day moving averages are higher than 200-day for these indexes. It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.

Three Major Positives

First, the U.S. economy remains stable. Consumer confidence data for January and preliminary consumer sentiment data for February have jumped underscoring the fact that individuals are still optimistic about future growth prospects. Some business-centric data hinted on a possible bottoming out of the U.S. manufacturing.

Second, U.S. corporates have performed better-than expected in fourth-quarter 2019. Total earnings for the S&P 500 index are currently expected to be up 0.8% on 4.3% higher revenues year to date. This is a complete turnaround from earnings decline of 3.2% year over year on 3.5% higher revenues, projected at the beginning of the reporting cycle.

More importantly, despite the outbreak of the coronavirus, total earnings of the S&P 500 index for the ensuing first-quarter 2020, are now expected to be up 1% on 5% higher revenues year over year.

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Third, an accommodative Fed and continuation of easy money policies have restored investor confidence on risky stock markets. The central bank’s assurance of doing whatever necessary to support U.S. economic expansion has boosted market participants’ optimism to a large extent.

Our Top Picks

At this stage, it will be prudent to invest in large-cap (market capital > $100 billion) stocks, which are member of any one or more indexes with a favorable Zacks Rank and strong growth potential. Large-cap companies are important due to their established business presence.

We have narrowed down our search to five such corporate behemoths that jumped more than 10% year to date and still have upside left. Each of our picks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see Zacks Investment Research

Written By: Zacks Investment Research