Despite several concerns, the Nasdaq outperformed the other major benchmarks throughout the first half of 2015. While the Dow declined 1.1% and the S&P 500 registered a gain of only 0.2% in the first half, the Nasdaq surged 5.3% in the year-to-date frame. Also, the Nasdaq hit an all-time high and crossed the 5K mark for the first time since the dot com bubble in 2000. Strong gains in biotech sectors and Apple AAPL were the major reasons behind the surge.
Broader Market Concerns
‘Grexit’ Worries
Concerns regarding the Greece debt negotiations continued to weigh on major benchmarks throughout the first half of 2015. Despite several discussions, Greece failed to reach a deal with its creditors . This raised concerns that Greece may exit from the Eurozone, which if happens may put huge pressure on the euro.
Separately, Greece has already defaulted on its debt payment of 1.55 billion euros to the International Monetary Fund (IMF) on Jun 30. Greece became the first developed nation to default on a debt payment to the IMF after its lenders turned down its request to buy more time.
Stronger Dollar
Surge in the U.S. dollar was one of the main concerns in the first half. Stronger dollar significantly affected first quarter earnings results, especially revenue figures of companies that have significant international exposure. As a result of which, the first quarter earnings season turned out to be weak compared with previous few quarters.
Total first quarter earnings for the 498 S&P 500 members were up 2.4% on 3.3% lower revenues. Only 62% could beat EPS estimates and only 42.4% outperformed revenue expectations.
Meanwhile, strength in the U.S. dollar had a huge impact on trade deficit over the first quarter. While a stronger dollar dragged down the export demand in the first quarter, it also boosted import demand as it made foreign goods cheaper. This resulted in a huge trade deficit that curbed around 2% from the GDP number.
Rate Hike Fears
Rate hike worries continued to dampened investor sentiment over the first half of 2015, which also had a negative impact on benchmarks. It is speculated that the Fed may opt for a possible rate hike in September or October this year, banking on a strong recovery in the U.S. economy. The Fed remained “reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
Though Fed recently signaled it will hike interest rates at a slower-than-expected pace, majority of Fed officials said that the improving U.S. economy is strong enough to withstand one or two rate hikes this year. Fed Chairwoman Janet Yellen emphasized that the timing of a rate hike isn’t important; instead the focus should be on the pace and trajectory of rate hikes.
Economic Recovery
According to the “third estimate” of the Bureau of Economic Analysis (BEA), the economy contracted at an annual rate of 0.2% in the first quarter, in line with the consensus estimate and compared favorably with “second estimate” of a 0.7% decline. Despite the first quarter contraction, recently released major economic data indicated that the economy is back on track to post healthy gains in the second quarter.
Non-farm payroll data showed that the economy continued to generate more than 200,000 jobs in every month till May, except for March. Also, the unemployment number gradually declined from 5.7% in January to 5.5% in May.
Meanwhile, housing market recovered strongly in the second quarter after harsh winter adversely affected the first quarter. Most of the housing market data that released in May and June were encouraging, indicating strength in the market. Moreover, the first quarter GDP report showed that surge in real residential fixed investment was one of the bright spots in the first quarter.
Separately, gradual increase in consumer sentiment, impressive wage growth and improving consumer spending boosted retail sales throughout the second quarter. However, this section suffered heavily in the first quarter as a harsh winter restricted consumers to spend more. These improving fundamentals and low level of oil prices also helped the auto sector to witness healthy gains throughout the first half.
What Boosted Nasdaq?
Biotech was the shining star among the U.S. sectors in the first half. The space soared on favorable industry dynamics, escalating merger and acquisition activities as well as successful drug trials, the last being the most important criterion. The iShares Nasdaq Biotechnology (IBB), which indicate the performance of biotech stocks listed in the Nasdaq, soared more than 21.6% this year on the back of these impressive fundamentals.
Separately, strong gains in Apple also helped the Nasdaq to outperform in the volatile environment. Shares of Apple surged 13.6% in the first half. The tech giant posted record earnings of roughly $18 billion in fiscal first quarter 2015 on the back of record high iPhone sales.
Apple’s record first quarter earnings result had also played an important role in elevating the first quarter earnings performance of the tech sector. Total earnings for the Technology sector, the biggest sector in the S&P 500, improved 6.9% on 7.5% higher revenues. However, excluding Apple from the tech sector, the first quarter earnings growth rate for the sector drops to negative 2.3% (from 6.9%).
Performance of Nasdaq in 1H-2015
Among the major benchmarks, the Nasdaq was the one that beat several concerns to post healthy gains over the first half of 2015. The chart given below illustrates the performance of the Nasdaq compared to its fellow benchmarks:
|
Period |
Benchmarks (%) |
||
|
Dow |
S&P 500 |
Nasdaq |
|
|
Jan |
-3.7 |
-3.1 |
-2.1 |
|
Feb |
5.6 |
5.5 |
7.1 |
|
March |
-2 |
-1.7 |
-1.3 |
|
April |
0.4 |
0.9 |
0.8 |
|
May |
0.9 |
1.1 |
2.6 |
|
June |
-2.2 |
-2.1 |
-1.6 |
|
1Q15 |
-0.3 |
0.4 |
3.5 |
|
2Q15 |
-0.9 |
-0.2 |
1.8 |
|
1H2015 |
-1.1 |
0.2 |
5.3 |
Source: Google Finance
3 Best Performing Nasdaq Stocks
Here are the 3 Nasdaq stocks that posted significant gains in the first half of 2015 and are expected to continue the momentum in near future. These stocks carry favorable Zacks Rank, reasonable forward price to earnings ratio (PE) and impressive growth prospects:
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
- Percentage price change in year-to-date frame (as of Jun 30) greater than or equal to 20%
- Forward price-to-earnings Ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
- Expected earnings growth for the current financial year greater than or equal to 15%
- Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years
- Market Cap greater than $1 billion
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Conns Inc. CONN is a specialty retailer involved in selling durable consumer goods and providing retail related services in the US. This Zacks Rank #2 (Buy) company operates through its Retail and Credit segments.
Conns has returned 112.4% year-to-date. The company also has a solid current year growth estimate of 35.9%. The company also has an impressive forward PE of 17.3x.
Ebix Inc. EBIX is one of the leading international suppliers of software and e-commerce solutions to the insurance industry.
This Zacks Rank #1 (Strong Buy) company has returned 91.9% year-to-date. The company also has a strong current year growth estimate of 17.4%. Moreover, Ebix has a solid forward PE of 16.64x.
Qiwi plc QIWI operates as a provider of next generation payment services in countries including Russia, the US and the United Arab Emirates.
QIWI has a Zacks Rank #1 (Strong Buy) and returned 38.9% year-to-date. The company also has an encouraging current year growth estimate of 47.1%. Also, Qiwi has a forward PE of 18.70.
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