As commodity prices continued to tumble last week, the benchmarks ended lower, with the S&P 500 posting its biggest weekly decline since August. Relentless decline in oil prices weighed on the broader markets. U.S. crude oil prices stayed near their seven-year low on fears of continued supply glut. And mild weather intensified the downward pressure on oil prices.
Meanwhile, China’s discouraging trade data reignited fears of a global slowdown, which intensified the downward pressure on material stocks. Separately, an abrupt closure of a high-profile junk bond mutual fund also added to the bearish sentiment.
However, a strong November jobs report gave indications that the Federal Reserve is widely expected to hike benchmark interest rates for the first time in almost a decade during its two-day policy meeting on Dec 15–16. Fed officials expect the employment and inflation rates to touch the desired level reflecting a healthy U.S. economy.
Given the Fed’s confidence in the fundamental strength of the economy, it is expected that the equity market will move north in the near term. Quarterly earnings reports of a large number of companies have also been encouraging. Further, benchmarks posted modest gains on Monday, following a rebound in U.S. crude oil price. Hence, it will be prudent to invest in growth stocks which should get a lift once the broader market recognizes their full potential.
Let's now look into the factors that dented the markets recently:
Crude Oil Prices Decline
Crude oil prices spiraled down last week after the International Energy Administration said that abundant supply of oil will persist till next year even though demand for oil will continue to decline. Additionally, the Organization of the Petroleum Countries increased its oil production in November to its highest level since 2012.
The increase in output levels was mainly driven by an increase in production by Iraq. Decline in heating-oil price due to a big weekly rise in U.S. distillate supplies also had a negative impact on global oil prices.
For the week, WTI crude oil declined 10.9%, its largest weekly loss since the week ended Dec 12, 2014. Brent crude oil also declined 11.8% over last week. Nevertheless, U.S. crude oil price erased early losses on Monday to end in the positive territory as traders who bet on lower prices likely booked profits.
Materials Stocks Tumble
Disappointing trade data from China raised concerns about a global recession, which in turn negatively impacted material stocks. The Materials Select Sector SPDR ETF (XLB) declined 1.3% on Monday, the worst dip among the S&P 500 sectors.
Last week, China's General Administration of Customs reported that the world’s second largest economy’s imports fell 8.7% year over year, last month. Decline in imports indicated a fall in the prices of commodities including oil, iron ore and copper. It also reflected sluggish demand for basic materials. Exports also declined 6.8% in November compared to a year ago. While China’s imports declined for the 13th successive month, its exports fell for the 5th consecutive month.
Junk Bonds Resume Sharp Selloff
Investors dumped high-yield bonds on Monday following the closure of a high-profile junk bond mutual fund last Friday. The Third Avenue Management LLC liquidated the $789 million Third Avenue Focused Credit Fund, preventing investors from withdrawing money that they had invested in it. The iShares iBoxx USD High Yield Corporate Bond exchange-traded fund, the largest junk-bond ETF, dropped 0.9% on Monday after declining 2% last Friday, its worst drop since 2011.
Nevertheless, investors remained focused on the Fed’s meeting that is scheduled to start today. The Fed is expected to hike rates for the first time in nearly a decade, banking on an upbeat jobs report. This implies that the market is poised for further growth, despite some volatility.
5 Growth Picks
Fed Chairwoman Janet Yellen has already said that a rate hike “will be a testament…to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession.” She seems confident that the U.S. economy will grow modestly over the next year or two. Additionally, in an interview to The Wall Street Journal, Atlanta Fed President Dennis Lockhart said that economic situation is satisfactory and the financial markets are prepared for a liftoff.
Given these positive vibes it is expected that the broader markets will continue their bullish run in the near term. Since the long term bodes well for stocks after the initial dip, it will be a wise to invest in growth stocks. Moreover, by purchasing stocks right after a dip, investors are essentially buying shares at a discounted price.
With the help of our new style score system, we have short-listed Zacks Rank #1 (Strong Buy) stocks with a Growth Style Score of ‘A’ that hold immense growth potential despite declining in recent weeks. Our research shows that stocks with a Growth Style Score of ‘A’ when combined with a Zacks Rank #1 offer the best investment opportunities in the growth investing space.
Achillion Pharmaceuticals, Inc. ACHN is a pharmaceutical company that brings new treatments to patients with infectious disease. ACHN is poised to grow despite declining 8.7% in the past four weeks.
BJ's Restaurants, Inc. BJRI owns and operates casual dining restaurants. BJRI is positioned to grow despite dropping a meager 0.02% in the past four weeks.
Isle of Capri Casinos, Inc. ISLE is an owner and operator of branded gaming and entertainment facilities in the U.S. ISLE is poised to grow despite plunging 28.5% in the past four weeks.
LendingTree, Inc. TREE operates an online loan marketplace for consumers. TREE is positioned to grow despite plummeting 22.2% in the past four weeks.
Netgear Inc. NTGR designs technologically advanced networking products. NTGR is poised to grow despite declining 1.4% in the past four weeks.
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