U.S. stocks are on track to record their best annual performance in six years mainly powered by trade optimism and a dovish Fed. A technology surge, improving economic outlook and better-than-expected earnings added to the strength.
Below we discuss some of the events that dominated the headlines in 2019 and influenced the market:
Trade & Tariff
Trade fears abated after the phase one deal was agreed upon by the world’s two largest powers.
In the preliminary deal, China committed to buy $40 billion of American agricultural products annually, tighten measures for protecting American intellectual property and stop forcing U.S. companies to transfer their technology while doing business in China. In return, President Donald Trump agreed to halt the planned tariffs on $156 billion of Chinese goods that were due to take effect from Dec 15 and cut tariffs from 15% to 7.5% on $120 billion of Chinese goods that were imposed in September.
However, the 25% tariff on $250 billion worth of Chinese imports levied in March 2018 will be intact. The deal is expected to be signed in early January and has allayed fears of global slowdown, instilling confidence in the market. U.S. Trade Representative Robert Lighthizer stated that the deal will boost U.S. exports to China by $100 billion in 2021, nearly double the current levels.
While most corners of the market are set to explode higher, sectors that are the most sensitive to trade issues like technology and industrial seem to be the biggest beneficiaries. In particular, chip stocks dominate the list of tech sector players with large sales exposure to China. As such, a stock from these two segments could be the best options to load up for 2020. In particular, Cirrus Logic Inc. CRUS and CIRCOR International Inc. CIR could be intriguing. Cirrus Logic climbed 151.2% in 2019 and is expected to continue its strong run given that it has a Zacks Rank #1 (Strong Buy) and Growth Score of B. CIRCOR International also has a Zacks Rank #1 and Growth Score of B. The stock is up 116.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
A Dovish Fed
The Fed has slashed interest rates three times this year by 25 bps each — July, September and October — to sustain a decade-long economic expansion. Additionally, the central bank hinted that it will keep interest rates unchanged for 2020 unless there is any drastic change in the economic outlook. Lower interest rates have made borrowings cheaper, providing a boost to both investment in new projects and repayment of a higher-rate debt.
Amid a lower-rate environment, high-dividend-yield sectors such as utilities and real estate will be the biggest beneficiaries given their sensitivity to interest rates. Some of the top-ranked stocks from these spaces include The AES Corporation AES, Black Hills Corporation BKH, VICI Properties Inc. VICI and Medical Properties Trust Inc. MPW. These stocks have a Zacks Rank #1 or 2 (Buy), suggesting their outperformance in the months ahead. Further, these stocks are expected to generate solid earnings growth next year (AES – 9.7%, BKH – 14.7%, VICI – 12.5% and MPW – 20.4%).
Wall Street Hits New Milestone
Boosted by the bullish fundamentals, Wall Street has hit a series of record highs in recent months. The S&P 500 breached the 3,200 level for the first time ever this month while the Dow Jones topped the 28,000 milestone last month. Meanwhile, the Nasdaq also broke the 9,000 level. The bullish trend is likely to continue heading into the New Year powered by the Fed’s accommodative interest-rate policy and a resilient domestic economy. The U.S. economy is on a strong growth path with job additions at the fastest pace this year and unemployment dropping to the lowest level since 1969.
Axsome Therapeutics Inc. AXSM topped the list of best-performing stocks of 2019, skyrocketing more than 3516%. This biopharmaceutical company, which is focused on developing novel therapies for the management of pain and other central nervous system disorders, currently has a Zacks Rank #3 (Hold) and VGM Score of D. It has an estimated earnings growth rate of 7% for 2020.
Tech Remains Top Spot
The technology sector as represented by the S&P 500 information technology sector is on track to post the best year in a decade powered by soaring semiconductor stocks and Apple (AAPL) surge. The index is up more than 48% this year and is likely to continue its uptrend in 2020 given the rollout of 5G-capable phones that will add gains for device makers and their supply chain providers.
Digital Turbine Inc. APPS, with a Zacks Rank #3 and VGM Score of B, emerged as the winner in 2019, gaining 304.4%. The Zacks Consensus Estimate for fiscal year (ending March 2021) has moved up from 22 cents to 25 cents over the past three months. It has an estimated earnings growth rate of 19.8%.
Zacks Top 10 Stocks for 2020
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