Wall Street suffered a setback on the first trading day of December after completing an impressive November. On Dec 2, the three major stock exchanges — the Dow, the S&P 500 and the Nasdaq Composite — declined 0.9%, 0.8% and 1.1%, respectively.
Uncertainty about an interim trade deal with China and renewed tariff war with Latin American and European countries pushed indexes in the negative territory. Market volatility is likely to stay in the near term and investors should be prepared for that.
No Abatement in U.S.-China Trade Conflict
The more than 18-month old trade war between the United States and China is showing no signs of ending so far. After imposing tariffs and counter tariffs in 2018, the two countries tried to reach an amicable solution from the beginning of 2019. The talks however abruptly ended in May after President Donald Trump accused China of back tracking on its earlier commitments.
However, trade negotiation renewed in July. On Oct 11, President Trump said that both sides will sign a phase-one deal by mid-November. However, nothing concrete has appeared to date. The Trump administration wants China to substantially increase agricultural imports with firm commitments on protection of U.S. intellectual properties and abrogation of forced technology transfer. On the other hand, China wants U.S. tariffs on Chinese goods to be removed first.
Investors are keenly watching trade-related developments as the Dec 15 deadline is approaching. President Trump set this deadline for signing the phase-one deal failing which his government will implement a fresh round of 15% tariffs on $160 billion of Chinese goods mostly used as inputs for consumer goods. Moreover, on Dec 2, U.S. Commerce Secretary Wilbur Ross said that the U.S. government may also hike tariff rate on $250 billion of Chinese goods, which are already under the 25% tax bracket.
Meanwhile, diplomatic relations between the two largest trading nations deteriorated on Nov 27 after President Trump signed two bills supporting Hong Kong protesters, despite China’s repeated objections. Several industry watchers believe that a partial trade deal, if signed, will not materialized before late December or may be next year.
More Tariff Wars
On Dec 2, President Trump said that he will restore tariffs on U.S. steel and aluminum imports from Brazil and Argentina effective immediately. The U.S. government implemented 25% tariff on imported steel and 10% duty on imported aluminum on Mar 1, 2018.
According to Trump, “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers.” Trump also insisted that the Fed should prevent countries from gaining an economic advantage by devaluing their currencies.
The U.S. government has also decided to impose retaliatory tariffs on France since the latter imposed digital tax, which the Trump administration believes will hurt business interest of U.S. tech behemoths. The U.S. government has proposed levying duties of up to 100% on $2.4 billion French products, including sparkling wine, cheese, and other goods.
Our Top Picks
U.S. stock markets are likely to remain choppy in the first half of December or maybe the full month unless there are some positives on the trade war front. At this juncture, it will be prudent to invest in low-beta (beta value less than 1 but greater than zero) stocks as these stocks will be less volatile than the broader market.
However, the selection process may be difficult. This is where our VGM Score comes in handy. We have narrowed down our search to five such stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks in the past six months.
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Shoe Carnival Inc. SCVL operates as a family footwear retailer in the United States. It offers various dresses, casuals and athletic footwear products for men, women and children, and accessories, such as socks, belts, shoe care items, handbags, sport bags, backpacks, scarves and wallets.
The company has an expected earnings growth rate of 17.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.6% over the past 30 days. The stock price has gained 30.6% in the past six months.
DICK'S Sporting Goods Inc. DKS operates as a sporting goods retailer primarily in eastern United States. It provides sporting goods equipment, fitness equipment, golf equipment, and hunting and fishing gear products, apparel; and footwear and accessories.
The company has an expected earnings growth rate of 10.8% for the current year. The Zacks Consensus Estimate for the current year has improved 6.2% over the past 30 days. The stock price has advanced 25.5% in the past six months.
Hibbett Sports Inc. HIBB is engaged in the retail of athletic-inspired fashion products through its stores. Its stores offer a range of merchandise, including athletic footwear, athletic and fashion apparel, sports equipment, and related accessories.
The company has an expected earnings growth rate of 38.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.9% over the past 30 days. The stock price has rallied 25.5% in the past six months.
NRG Energy Inc. NRG is involved in the producing, selling, and delivering electricity and related products and services to 3.1 million residential, industrial and commercial consumers in the United States. It generates electricity using natural gas, coal, oil, solar, nuclear, wind, fossil fuel, and nuclear sources.
The company has an expected earnings growth rate of 101.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 23.7% over the past 30 days. The stock price has climbed 14.2% in the past six months.
Murphy USA Inc. MUSA is engaged in the marketing of retail motor fuel products and convenience merchandise. It operates retail stores under the Murphy USA and Murphy Express brand names.
The company has a negative expected earnings growth rate for the current year. However, its growth rate for the next year is currently pegged at 11.6%. The Zacks Consensus Estimate for the current and next year has improved by 4.2% and 7.2%, respectively, over the past 30 days. The stock price has surged 38.1% in the past six months.
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