Following the easing of tensions between the United States and China, U.S. stock markets hit a two-month high on May 21. Notably, President Trump’s imposition of tariffs on Chinese imports and retaliatory tariffs by China aggravated the market volatility which commenced in February.
However, the two rounds of meetings between the two countries’ high level delegates have prevented tensions from escalating. This positive factor along with robust first-quarter 2018 earnings and strong fundamentals of the U.S. economy signal the persistence of uptrend in the market. Consequently, it will be a prudent decision to pick good growth stocks at the moment to enrich your portfolio.
Wall Street Gains Big on Monday
On May 21, the Dow 30, S&P 500 and Nasdaq Composite gained 1.2%, 0.7% and 0.5%, respectively. The blue-chip Dow 30 index gained 298.2 points to close at 25,103.29, its highest since Mar 12. The benchmark index S&P 500 closed at 2,733.01, the index’s highest point in almost nine weeks. Tech-heavy Nasdaq Composite also followed suit closing at 7,394.04. All three major indexes are currently in the green year to date.
Trade War Fears Ease
On March 2018, the United States levied tariffs worth $50 billion on China. Nearly 1,300 Chinese products which were utilized in high-tech sectors bore the brunt of the tariffs. China also retaliated by imposing tariffs worth of $50 billion primarily on U.S. agricultural exports. The Trump administration also gave indications of releasing a list detailing tariffs worth $100 billion on China, fueling fears of a full-fledged trade war.
However, on May 20, the U.S. Treasury Secretary Steven Mnuchin said that the prospect of a trade war was “on hold” following two rounds of meetings between high-level delegations of the two countries. China agreed to buy larger amounts of U.S. goods, especially energy and agricultural products, in order to reduce $375 billion per annum trade surplus with the United States.
Robust Earnings Momentum
First-quarter earnings results have been exhibiting strong momentum so far. Total earnings are expected to be up 23.9% from the same period last year on 8.5% higher revenues. This is the highest quarterly earnings growth pace in seven years. For full-year 2018, total earnings for the S&P 500 index are expected to be up 19.4% on 5.8% higher revenues. (Read more: Strong Retail Sector Earnings Growth)
A big driver of these positive revisions is obviously the direct impact of the massive $1.5 trillion (including corporate and personal) tax cuts. The full effect of the tax overhaul is yet to appear in the economy as the measures were implemented in January only.
Our Top Picks
Stock markets momentum remained largely unhindered despite recent volatility. Gradual fading out of trade conflicts, steady economic activities and business-friendly policies adopted by the government will pave the way for further stock market growth.
At this stage, investment in stocks with strong growth potential will be lucrative. Our selection is backed by a good Zacks Growth Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Growth-investing space. We have handpicked five such stocks with a Zacks Rank #1 and Growth Style Score of A.
The chart below shows price performance of our five picks year to date.