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4 Blue Chip Stocks to Ride the Stellar Dow Jones Rally

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The euphoria surrounding President Donald Trump's proposed market-friendly policies including the prospect of massive tax cuts and an uptick in infrastructure spending propelled the Dow to all-time highs. Investors should be optimistic about possibility of positive economic-policy change from the Trump administration, which should further help blue chip stocks rise steadily in the near term.

Lest we forget that Fed Chairwoman Janet Yellen got more hawkish, which helped financial blue chip companies register big gains, while signs of a strengthening economy also bolstered the Dow's upward journey.

Dow Achieves 7th Straight Record High

The Dow eked out gains to register its record-setting winning streak to a seventh session on Feb 17. Despite languishing in the red for most of the day, the blue-chip index recouped losses and settled in positive territory toward the closing bell. The index continues to hover above the psychological milestone of 20,000, while it was up 1.8% for the week.

The index remains the most watched measure of US stock market performance for the majority of Americans mostly because it has been around since 1896. The index had finished above the 19,000 mark on Nov 22. From that mark the close above 20,000 was the second-fastest rise, achieved in just 42 days.

The index crossing the 20,000 level was no fluke, since the current stock prices are well supported by the Trump induced rally. Until and unless the new administration stumbles into a trade war, the index is further expected to overtake the 30,000 milestone by 2025, according to the latest Barron's cover story.

"Trump Rally" Fuels Dow

Trump's polices including tax cuts, repealing regulations and pickup in infrastructure outlays restored expectations of a pro-growth agenda that helped the Dow push further into record territory. Trump plans to overhaul tax codes for business and individuals over the next two to three weeks. He plans a multi-trillion-dollar tax cut that will boost the U.S. economy and lift corporate profits. Such a tax cut included trimming of the business tax rate to 15% from 35%, reducing individual tax rates and elimination of the estate tax (read more: 5 Explosive Growth Stocks to Tap Best Win Streak in 25 Years ).

Trump also keeps talking about how he wants to reconstruct America's roads, bridges and other infrastructures, which led his administration to unveil a proposal to spend $1 trillion over the next 10 years. He, in fact, in his campaign released a proposal to offer $137 billion in tax breaks to investors who want to finance toll roads, bridges or other projects (read more: Top Stock Picks for Trumps Trillion Dollar Infrastructure Plan ).

Trump, in the meantime, signed an executive order designed to scale back the Dodd-Frank Act. Trump views the Dodd-Frank regulatory overhaul as a harsh measure, especially, on banks as they had to beef up compliance compartments to deal with a list of new rules.

Fed's Hawkish Tone Boosts Financials

Yellen also left open the possibility of a rate hike as early as the central bank's next policy meeting in March. An interest rate hike generally bodes well for banks, insurance and brokerage houses. Citing an improving economy and solid labor market, she noted that waiting too long to hike rates will be unwise as it might hamper the broader financial markets and dampen economic growth.

Yellen expects a gradual rate increase amid a modestly expanding economy and inflation that should touch the Fed's desired target rate of 2% in the near term. She said that "at our upcoming meetings, the Fed will evaluate whether employment and inflation are continuing to evolve in line with…expectations, in which case a further adjustment of the federal funds rate would likely be appropriate". Notably, banking-behemoths like The Goldman Sachs Group, Inc. GS gained above 4% this year, benefiting from expectations of higher interest rates and looser Wall Street regulations (read more: Yellen Increases Odds of March Rate Hike: 5 Top Winners ).

Signs of a Strengthening Economy

Hopes for stronger economic growth also aided Dow's northward movement. Despite a decline in U.S. homebuilding in January, mostly due to a drop in multi-family housing projects, the upward revision in prior month's report along with a jump in building permits to a one-year high indicates that housing recovery is very much on track.

Better-than-expected rise in retail sales coupled with consumer prices recording the highest gain in almost four years in January reinforced confidence in the economy, after an upbeat fourth-quarter earnings season.

Buy These 4 Blue Chips Now

Thanks to the aforementioned bullish factors there has been a particularly sharp run up in the 120-year-old index of 30 stocks. These companies are slated to gain further in the near term as they have large market capitalization, strong balance sheets and solid cash flow. We have, thus, selected four such blue-chip stocks that have a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

The Goldman Sachs Group, Inc. operates as an investment banking, securities, and investment management company. The company's fourth-quarter 2016 results outpaced the Zacks Consensus Estimate on high fixed-income revenues and lower expenses. Notably, the Fixed Income, Currency and Commodities Client Execution unit experienced improved market conditions, with rise in interest rates and tighter credit spreads.

The Zacks Consensus Estimate for its current year earnings surged 4.6% over the last 60 days. Goldman Sachs outperformed the Financial-Investment Bank industry over the last one year period (+68.28% vs. +65.66%).

JPMorgan Chase & Co.JPM operates as a financial services company. The company's fourth-quarter 2016 earnings handily surpassed the Zacks Consensus Estimate on the back of improved trading and mortgage banking fees. Also, a rise in net interest income along with lower operating expenses and credit costs supported the results. The company remains well positioned to benefit from the improved rate scenario and rising loan demand.

The Zacks Consensus Estimate for its current year earnings increased 1.7% over the last 60 days. JPMorgan Chase outperformed the Banks-Major Regional industry in the last one year period (+54.05% vs. +47.75%).

American Express CompanyAXP provides charge and credit payment card products and travel-related services to consumers and businesses. The company expects earnings per share for this year in the range of $5.60-$5.80. This reflects an increase from its prior guidance of at least $5.60 per share.

The Zacks Consensus Estimate for its current year earnings advanced 1.4% over the last 60 days. American Express outperformed the Financial-Miscellaneous Services industry over the last one year period (+43.29% vs. +34.40%).

Visa Inc.V operates as a payments technology company. The company's first-quarter fiscal 2017 earnings per share outpaced the Zacks Consensus Estimate. Results were aided by the acquisition of Visa Europe and solid growth in payments volume. The company's strategic acquisitions and alliances, technology upgrades and effective marketing efforts bode well for its long-term growth.

The Zacks Consensus Estimate for its current year earnings improved 1.2% over the last 60 days. This company from the Financial Transaction Services industry has given a solid return of 19.71% in the last one year period.

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J P Morgan Chase & Co (JPM): Free Stock Analysis Report

Goldman Sachs Group, Inc. (The) (GS): Free Stock Analysis Report

American Express Company (AXP): Free Stock Analysis Report

Visa Inc. (V): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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