Can S&P 500 And Nasdaq Sustain Record Run? 5 Top Picks

The impressive rally of Wall Street which commenced at the beginning of this year achieved a milestone on Apr 23. The broad-market S&P 500 Index and tech-laden Nasdaq Composite closed at an all-time high level yesterday. A study of all record highs hit so far by these indexes provide some intriguing insights into Wall Street movements.

Wall Street Changes at Jet Speed

On Apr 23, the S&P 500 closed at 2,933.68, exceeding its previous all-time high of 2,930.75 recorded on Sep 20, 2018. Likewise, the Nasdaq Composite closed at 8,120.82, toppling its previous all-time high of 8,109.69 on Aug 29, 2018.

However, it took just about 14 weeks for both these indexes to collapse to their lowest levels since 2008, on the eve of Christmas, last year. The U.S.-China trade conflict, a hawkish Fed and concerns about global economic slowdown resulted in a stock market rout.

Interestingly, a series of positive developments on the trade war front, the Fed’s dovish monetary stance and sharp recovery of crude oil prices resulted in a complete turnaround of stock markets. Wall Street took merely 17 weeks to again set new record highs.

Can the S&P 500 and Nasdaq Composite maintain their newly achieved momentum or fall victim to severe market volatility yet again?

Possible Sources of Volatility

On Apr 17, both The Wall Street Journal and Bloomberg reported that the United States and China are trying hard to reach a deal to end the prolonged trade-related conflict by early May. However, if the negotiation process lingers beyond May, investors are likely to get jittery resulting in volatile trading.

Any change in the Fed’s dovish outlook is likely to jeopardize the bull run. The Fed has decided to keep its benchmark within the range of 2.25–2.5%. Recently, the effective Fed funds rate jumped to 2.44%, its highest level since March 2008. At present, inflation is also under Fed’s 2% target. However, a strong U.S. economy may compel the central bank to hike interest rates later this year, much to the chagrin of market participants.

Moreover, Wall Street is susceptible to several geopolitical risks. Any tariff-related concern between the United States and Eurozone, which is facing severe economic downturn, will have a contagion effect on U.S. stock markets.

Future Looks Bright Despite Disturbing Elements

Three major economic data of March testified that the inherent strength of the economy remains intact. The ISM manufacturing data and retail sales data indicate that business investment and consumer spending remain firm. The labor market data underscores overall robustness of the U.S. economy.

Moreover, a likely solution to the U.S-China trade conflict will act as a major catalyst for global economic growth. Furthermore, first-quarter data showed signs of China’s economy bottoming out this year. Notably, China is the largest trading partner of the United States. Finally, crude oil price is likely to remain at elevated levels in the near term owing to supply concerns from Iran, Venezuela and Libya, and significant restrictions on oil production maintained by the OPEC.

Top Picks

At this stage, it will be prudent to invest in stocks that are part of the S&P 500 or Nasdaq Composite. We have narrowed down our search to five such companies. Each of these stocks carries a Zacks Rank #1 (Strong Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to soar on their earnings releases irrespective of already solid gains year to date.

The chart below shows price performance of our five picks year to date.

CommScope Holding Co. Inc. (NASDAQ:COMM) provides infrastructure solutions for communication networks worldwide. The company has an expected earnings growth rate of 13.7% for the current year. It has an Earnings ESP of +1.89% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 2.3% and 18.3%, respectively, over the last 30 days. CommScope is expected to release earnings results on May 7.

Incyte Corp. (NASDAQ:INCY) focuses on the discovery, development and commercialization of various therapeutics in the United States. The company has an expected earnings growth rate of 102.9% for the current year. It has an Earnings ESP of +14.47% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 5.3% and 3.4%, respectively, over the last 30 days. Incyte’s earnings release is expected on Apr 30.

Cigna Corp. (NYSE:CI) is a health service organization, provides insurance and related products and services in the United States and internationally. The company has an expected earnings growth rate of 15.5% for the current year. It has an Earnings ESP of +5.14% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 0.5% and 0.1%, respectively, over the last 30 days. Cigna is expected to come up with its earnings results on May 2.

Columbia Sportswear Co. (NASDAQ:COLM) designs, markets and distributes outdoor and active lifestyle apparel, footwear, accessories, and equipment in the United States and internationally. The company has an expected earnings growth rate of 10.5% for the current year. It has an Earnings ESP of +1.57% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 1.2% and 0.1%, respectively, over the last 30 days. Columbia Sportswear is expected to release earnings results on Apr 25.

Synopsys Inc. (NASDAQ:SNPS) provides electronic design automation software products used to design and test integrated circuits. The company has an expected earnings growth rate of 9.2% for the current year. It has an Earnings ESP of +1.15% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 0.9% and 0.2%, respectively, over the last 30 days. Synopsys is expected to come up with its earnings results on May 22.

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