The markets have been witnessing a bull run in the first two weeks of July, signaling a recovery for Wall Street. Global trade war concerns and fear of growing inflation in the U.S. economy had been plaguing the U.S. stock markets for the first half of 2018.
In fact, stock market momentum remained largely unhindered despite recent volatility. Gradual easing of trade conflicts, steady economic activities and business-friendly policies adopted by the government will pave the way for further upside. At this stage, investment in stocks with strong price momentum and a favorable Zacks Rank will be lucrative.
Wall Street Witnesses Two-Weekly Rally
Wall Street first observed strong performance in the first two weeks of July. For the week ended Jul 6, all three major stock indexes - the Dow, S&P 500 and Nasdaq Composite - gained 0.8%, 1.5% and 2.4%, respectively. Likewise, for the week ended Jul 13, the Dow, S&P 500 and Nasdaq Composite rallied 2.3%, 1.5% and 1.8%. This two-week rally placed all three major indexes in positive territory year to date.
On Jul 13, the Dow ended at 25,019.41 points. The 30-stock blue-chip index closed above 25,000 for the first time since Jun 15. The S&P 500 closed at 2,801.31, reflecting the first finish above 2,800 since Feb.1. Tech-heavy Nasdaq Composite closed at 7,825.98, marking a fresh all-time high.
U.S. Economy Remains Robust
On Jul 6, the Department of Labor reported that the U.S. economy added 213,000 non-farm jobs in June outpacing the consensus estimate of 196,000. June's job market data reduces concerns that the United States is in the late stage of economic expansion offering little sweetness for market participants.
Moreover, ISM manufacturing and services data for June, Commerce Department's encouraging data on U.S. trade deficit in May as well as strong consumer credit data for May released by the Fed raised investors' confidence.
The Labor Department data has also shown that for the month of June, average wage rate rose marginally by 0.2% to 2.7% on a year-over-year basis. This was lower than the consensus estimate of 2.8%. The low-wage hike indicates that hyper inflationary expectations are overblown which may enable the Fed to follow a steady state rate hike policy.
Strong Earnings Momentum
Market participants are expecting strong showing by American corporates as second-quarter earnings season slowly gathers steam. So far, 27 S&P 500 members have reported earnings results. For those companies, earnings were up 19.1% from the same period last year on 9.7% higher revenues.
Total earnings of the S&P 500 index is expected to be up 19.5% in the second-quarter 2018 from the same period last year driven by 8.2% year-over-year growth in revenues. A big driver of these positive revisions is obviously the direct impact of the tax cuts. (Read More: Market Unimpressed with Bank Earnings )
Our Top Picks
Solid macro-economic fundamentals, government's tax reform and deregulation proposals along with sustained strong earnings performance are major tailwinds for the U.S. stock markets. These factors are unlikely to disappear in the near term.
At this stage, investment in stocks with strong momentum will be lucrative. We have selected five stocks with Zacks Momentum Score of A and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here . Our research shows that stocks with a Momentum Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Momentum-investing space.
The chart below shows price performance of our five picks in the last one month.
Papa Murphy's Holdings Inc.FRSH operates as a franchisor and operator of the Take 'N' Bake pizza chain in the United States. In addition to scratch-made pizzas, the company offers a growing menu of grab 'n' goes items, including salads, sides and desserts. Papa Murphy's Holdings has expected earnings growth of 153.3% for current year. The Zacks Consensus Estimate for the current year has improved by 15.2% over the last 30 days.
EOG Resources Inc.EOG is one of the largest independent crude oil and natural gas companies in the United States with reserves in the United States, Trinidad, the UK and China. EOG Resources has expected earnings growth of 368.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.7% over the last 30 days.
ConocoPhillipsCOP is a major global oil exploration and production (E&P) company with operations worldwide. ConocoPhillips has expected earnings growth of 615% for current year. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 30 days.
CarMax Inc.KMX operates as a retailer of used cars. The company also sells vehicles through on-site wholesale auctions, as well as sells new vehicles under franchise agreements. CarMax has expected earnings growth of 24.3% for current year. The Zacks Consensus Estimate for the current year has improved by 4.8% over the last 30 days.
Actuant Corp.ATU is a diversified industrial company serving customers from operations in more than 30 countries. Actuant has expected earnings growth of 27.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.
Wall Street's Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It's a once-in-a-generation opportunity to invest in pure genius.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report