Wall Street bull run has largely remained unaffected by the severe outbreak of deadly coronavirus in China. Several economists remained concerned regarding the global and Chinese economic recovery as they are of the opinion that it might be delayed.
Various recent economic studies revealed that the U.S. economic growth rate is likely to be sluggish in first-quarter 2020 thanks to the coronavirus outbreak.
However, Wall Street has been able to sustain its longest bull run amid this backdrop. Following a fabulous 2019, all three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 2.6%, 3.8% and 7.3%, respectively.
On Feb 10, both the S&P 500 and the Nasdaq Composite closed the day with fresh all-time highs, while the Dow is close to a new high. Moreover, the Technology Select Sector SPDR (XLK) — the largest sector within the benchmark S&P 500 index — jumped 10.2% year to date.
Technology Stocks Fuel the Rally
The technology stocks have primarily propelled the impressive bull run. The world is witnessing rapid technological improvements owing to unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video. These developments have transformed this industry into an ever evolving, inventive and keenly contested space.
Growing deployment of next-generation super-fast 5G technology and massive application of IoT has created significant demand for highly technically sophisticated products. Moreover, large tech companies are rapidly shifting to digital media platform offering online TV streaming services, resulting in innovative product differentiation.
Moreover, the technology sector is expected to benefit most from the interim trade deal between the United States and China. An end to the U.S.-China trade spat is likely to restore Chinese and global economic growth, which in turn will create demand for high-tech U.S. products.
Likewise, the repeal of tariffs on Chinese intermediary goods should raise the profit margin of U.S. tech giants. Moreover, clinching a lasting agreement with China, which will stringently protect U.S. intellectual properties, will be immensely beneficial to the home-grown tech behemoths.
Strong U.S. Economic Data
On Feb 7, the Department of Labor reported that the U.S. non-farm job addition came in at 225,000 surpassing the consensus estimate of 162,000. The unemployment rate remained at 50-year low-level of 3.6%. Average wage rate improved 3.1% year over year, reflecting the 18th successive month of 3% or above wage rate growth.
On Feb 3, the Institute of Supply Management (ISM) reported that the U.S. manufacturing activities index for the month of January came in at 50.9 —its highest since July 2019 and first expansion after five consecutive months of contraction.
On Feb 5, the ISM stated that non-manufacturing (services) sector grew for the 120th consecutive month in January to 55.5. Any reading above 50 means expansion and a reading above 55 means excellent expansions.
On Jan 28, the conference board reported that its consumer confidence index for the month of January came in at 131.6 — the highest since August 2019. Moreover, the expectations index, which is a measure of consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, increased to 102.5 from 100 in December.
Our Top Picks
We have narrowed down our search to five tech giants that have popped in 2020 and still have strong momentum left. All of these stocks are member of any one of the three major indexes and advanced more than the index so far this year. Each of our picks carries either a Zacks Rank #1 (Strong Buy) to 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Microsoft Corp. MSFT is one of the largest broad-based technology providers globally. Its offerings also include hardware and online services. Additionally, Microsoft offers support services in the form of consultation, training and certification of system integrators and developers. The company has an expected earnings growth rate of 18.7% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year has improved 5.8% over the past 30 days. The Zacks #1 Rank stock has rallied 19.7% year to date.
International Business Machines Corp. IBM provides advanced information technology solutions, including computer systems, software, storage systems and microelectronics. It operates in more than 175 countries. The company has an expected earnings growth rate of 4.3% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the last 30 days. The Zacks #2 Rank stock has jumped 15.2% year to date.
Intel Corp. INTC provides computing, networking, data storage and communication solutions worldwide. It operates through Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Programmable Solutions Group, Client Computing Group and All Other segments. The company has an expected earnings growth rate of 2.5% for the current year. The Zacks Consensus Estimate for the current year has improved 5.7% over the last 30 days. The Zacks #2 Rank stock has climbed 11% year to date.
Apple Inc. AAPL designs, manufactures and sells iPhone, iPad, iPod, Apple TV, Mac personal computers, Apple Watch, HomePod and AirPods. These devices are powered by iOS, macOS, watchOS and tvOS operating systems. The company has an expected earnings growth rate of 15.6% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 4.9% over the last 30 days. The Zacks #2 Rank stock has appreciated 9.5% year to date.
Lam Research Corp. LRCX supplies wafer fabrication equipment and services to the semiconductor industry. Its products are utilized by semiconductor manufacturers in front-end and WLP processes, creating memory, microprocessors, and other logic integrated circuits. The company has an expected earnings growth rate of 15.6% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year has improved 11.8% over the last 30 days. The Zacks #2 Rank stock has gained 9.4% year to date.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
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