The Wall Street bull run completed 10 years on Mar 9. Historically this is the longest bull run of the U.S. stock markets. During this period, the Dow has gained nearly 300%, the S&P 500 has jumped more than 400% and the Nasdaq Composite has surged nearly 500%.
As a result of these enormous gains, several industry researchers have cautioned that the bull market is now too old with little room to run. A closer look at the U.S. economy has a different story to tell, with enough reasons for further rally.
Wall Street Rebounds in 2019
After a disappointing 2018, in which all the three major stock indexes closed in the red owing to severe volatility, Wall Street has made a spectacular comeback this year. The three Key indexes gained impressively in the first two months marking the best start by Wall Street in three decades. Year to date, the Dow, S&P 500 and Nasdaq Composite are up 9.1%, 9.4% and 11.7%, respectively.
Fed Adopts Dovish Stance
On Feb 27, in his testimony before the House Committee, Fed Chair Jerome Powell said that the central bank will not downsize its $4 trillion balance sheet this year. On Jan 30, the Federal Reserve decided to keep the federal funds target rate unchanged in the range of 2.25 - 2.50%. Per Powell, the central bank will maintain its dovish monetary stance at least for the time being. Notably, the Fed’s aggressive monetary stance in 2018 was largely held responsible by industry watchers for the stock market mayhem in the fourth quarter.
Positive Development on Trade War Front
The 11-month long trade dispute between the United States and China is heading toward a likely resolution. On Feb 24, President Donald Trump tweeted that the United States is planning to delay tariffs on additional Chinese goods as trade-related negotiations have made substantial progress. CNBC reported that China has committed to import $1.2 trillion of U.S. exports.
Weak Job Data a Temporary Phenomenon
The U.S. economy added just 20,000 jobs in February, significantly below the consensus estimate of 186,000. However, this depressing job data may be due to the 35-day long partial government shutdown. On the positive side, wage rate grew 0.4% compared with the consensus estimate of 0.3%. The unemployment rate also declined to the historic low level of 3.8% from 4% in January.
Strong GDP Data and Consumer Confidence
On Feb 28, the Department of Commerce reported that U.S. GDP for the fourth quarter of 2018 grew 2.6%. This figure was better than the consensus estimate of growth of 2.4%.
The Conference Board’s Consumer Confidence index for February surged to 131.4, its highest level in four months. The consensus estimate was 124.8. Moreover, the Future expectation index (which tracks consumers’ expectations for the next six months) jumped to 103.4 from 89.4.
Our Top Picks
The U.S. economy is likely to maintain its long-term growth albite at a slow pace. Consequently, it will be prudent to buy stocks that have surged up significantly in the past year and still carry strong upside potential. We narrowed down our search on five such stocks with a Zacks Rank #1 (Strong Buy).
American Superconductor Corp. is a leading energy technologies company providing megawatt-scale solutions worldwide. The stock has surged 151.9% in the past year. The company has an expected earnings growth rate of 55.9% for the current year. The Zacks Consensus Estimate for the current year has improved 11.8% over the last 60 days.
BioDelivery Sciences International Inc. is a specialty pharmaceutical company, engaging in the development and commercialization of pharmaceutical products principally in the areas of pain management and addiction. The stock has gained 120% in the past year. The company has an expected earnings growth rate of 74.7% for the current year. The Zacks Consensus Estimate for the current year has improved 28% over the last 60 days.
AeroVironment Inc. designs, develops, produces, supports, and operates a portfolio of products and services for government agencies and businesses. The stock has jumped 62.8% in a year’s time. The company has an expected earnings growth rate of 49.1% for the current year. The Zacks Consensus Estimate for the current year has improved 8.8% over the last 60 days.
Xilinx Inc. designs and develops programmable devices and associated technologies worldwide. The stock has surged 54% in the past year. The company has expected earnings growth of 23.3% for the current year. The Zacks Consensus Estimate for the current year has improved 6.1% over the last 60 days.
Ameresco Inc. provides comprehensive energy services for businesses and organizations in North America and Europe. The stock has gained 51.7% in a year’s time. The company has expected earnings growth of 13.1% for the current year. The Zacks Consensus Estimate for the current year has improved 7.3% over the last 60 days.
The chart below shows price performance of our five picks in the past year.