The month of August has turned out to be a robust one for U.S. stock investors. All three major indexes ended the month in the positive territory. Despite lingering trade related concerns – especially between the United States and China, Wall Street’s robust performance in August was fueled by strong second-quarter 2018 earnings results and solid macro-economic data like GDP, retail sales, consumer confidence and job data.
At this stage, investment in stocks which are part of these indexes and providing significant returns year to date along with a favorable Zacks Rank and strong growth potential will be lucrative.
Broader Market Northbound
| Month | Dow 30 | S&P 500 | Nasdaq |
| January | 5.8% | 5.6% | 7.4% |
| February | -4.3% | -3.9% | -1.9% |
| March | -3.5% | -2.7% | -2.9% |
| April | 0.3% | 0.3% | 0.1% |
| May | 1.1% | 2.2% | 5.3% |
| June | -0.6% | 0.5% | 0.9% |
| July | 4.7% | 3.6% | 2.0% |
| August | 2.2% | 3.0% | 5.7% |
The table clearly shows that stock market fluctuations which pushed all three major indexes into the negative territory in February and March gradually diminishing in the last four months. Barring a minor fluctuation of the Dow in June, all three indexes have provided positive returns in every month up to August.
Indexes Close at Record High
For the Dow 30 and S&P 500, this year’s August was the best one since 2014. For Nasdaq Composite, gain in August 2018 was best since 2000. During this month, S&P 500 and Nasdaq Composite achieved their new all-time highs after comfortably breaking 2,900 and 8,000 levels, respectively. The Dow also reached its psychologically important level of 26,000, but failed to maintain that mark. All three major stock indexes are currently out of correction territory (a correction is an uplift of 10% from a recent low) which they had entered on Feb 8.
Robust U.S. Economic Fundamentals
The revised estimate has shown that the U.S. GDP grew at 4.2% in the second quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009. On an average, in the first half of 2018, the U.S. economy grew 3.2%, higher than 3% annual GDP growth that the Trump administration desired. Moreover, unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years.
Strong Consumer and Business Confidence
On Aug 28, the Conference Board has reported that its U.S. consumer confidence index for the month of August has jumped to 133.4, marking its highest reading since October 2000. On Aug 1, the ISM reported that the U.S. manufacturing index for the month of July was 58.1 above the benchmark 50.0. For most of 2018, manufacturing sector formed the bulk of the U.S. durable goods productions with a growth rate of 8.6% year to date.
Notably, consumer spending and manufacturing sector accounts for about 70% and 12% of U.S. economic activity, respectively.
Our Picks
Stock markets momentum has remained largely unhindered despite volatility. Massive tax cut, business-friendly policies and steady economic activities resulted in robust earnings results.
At this stage, we narrowed down our search to five stocks which have provided significant returns year to date, each having a Zacks Rank #1 (Strong Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below depicts price performance of our five picks year to date.
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Amazon.com Inc. AMZN: The stock provided a massive positive earnings surprise of 1,347.1% in the trailing four quarters. Amazon has expected earnings growth of 288.8% for current year. The Zacks Consensus Estimate for the current year has improved by 38.9% over the last 60 days.
Illumina Inc. ILMN: The stock provided a positive earnings surprise of 25.2% in the trailing four quarters. Illumina has expected earnings growth of 36.5% for current year. The Zacks Consensus Estimate for the current year has improved by 12.1% over the last 60 days.
NetApp Inc. NTAP: The stock provided a positive earnings surprise of 15.3% in the trailing four quarters. NetApp has expected earnings growth of 27.4% for current year. The Zacks Consensus Estimate for the current year has improved by 9.4% over the last 60 days.
W.W. Grainger Inc. GWW: The stock provided a positive earnings surprise of 21.5% in the trailing four quarters. W.W. Grainger has expected earnings growth of 39.9% for current year. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 60 days.
CSX Corp. CSX: The stock provided a positive earnings surprise of 12.5% in the trailing four quarters. CSX has expected earnings growth of 56.1% for current year. The Zacks Consensus Estimate for the current year has improved by 9.8% over the last 60 days.
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