By last week, signs were rife that this year’s furious market rally is waning. The debacle, which ensued on Mar 4, more or less confirmed such aspersions. The Dow slumped to a two-week low as investors preferred caution over optimism on the impending trade deal with China. Valuation concerns dampened sentiment, taking the wind out of a two-month old rally.
At this point, investors seem to have largely priced in the impact of a much-awaited trade deal. At this point, global slowdown concerns are likely to put the brakes on equity gains. A decline in construction spending has also led to speculation that the estimate for fourth-quarter GDP will be revised lower.
Investing in blue-chip stocks makes perfect sense at this point. The first choice of investors with a conservative approach, these low-volatility stocks are ideal for capital preservation and steady dividend payouts during tough times.
Global Slowdown Concerns Linger
On Jan 21, the International Monetary Fund (IMF) reduced its global economic forecasts for this year and the next. These early fears seem to be borne out by the struggles of the world’s second-largest economy. On Mar 4, China cut its GDP forecasts and proceeded to announce a tax cut to deal with economic deceleration.
For the first time, China’s government lowered its GDP target for 2019 to a band of 6 to 6.5%. This provides policy makers with some breathing room, but still compares unfavorably with last year’s target of “about” 6.5%.
China’s GDP numbers were essentially a casualty of the recent trade tensions. This was also the case with February’s downward revision in Germany’s growth projections. Concerns over the global trade climate led the EU to cut its current-year GDP estimate from 1.8% to 1.1%. The entire Eurozone is now expected to expand at only 1.3% in 2019, significantly lower than the earlier estimate of 1.9%.
Trade Deal Fatigue Sets in, Construction Spending Falls
Experts had varying views on the reasons for the Mar 4 equity market plunge. CEO of Ritholtz Wealth Management, Josh Brown said that “deal headline fatigue had set in.” According to him, stocks had gained for 80 days on various developments which created optimism about a U.S.-China trade deal. “So, how many days in a row can you rally on the same premise?” he asked.
Others like Safanad’s John Rutledge still believe that an actual deal could provide fresh impetus to stocks. And while Sarat Sethi of Douglas C. Lane & Associates thinks there are “areas that we can still go forward if this deal is done properly,” he does agree that most of the resulting stimulus has already been priced in.
Meanwhile, construction spending for December declined 0.8%. This has led several economists to believe that the U.S. government will cut its growth estimates for the fourth quarter. GDP has already decelerated from the third-quarter rate of 3.4% to 2.6% in the fourth quarter, as per initial estimates. This leads to fresh concerns about an impending slowdown in the domestic economy.
The events of last week and the first trading day of this week showed that stocks are unwilling to move further north on trade deal optimism. Fatigue has set in on this count and most of the resulting stimulus is possibly already baked in. This is likely to spark off fresh concerns about a global and domestic economic slowdown.
Investing in blue-chip stocks that offer capital protection and steady dividends in volatile times looks like a smart option. In view of these factors, we have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.
The Boeing Company BA reported adjusted earnings of $5.48 per share for fourth-quarter 2018, which outshined the Zacks Consensus Estimate of $4.52 by 21.2%.
For 2018, Boeing’s adjusted earnings came in at $16.01 per share, which surpassed the Zacks Consensus Estimate of $15.06 by 6.3%.
The stock’s dividend yield is 1.9%. The company’s expected earnings growth for the current year is 25.7%. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the past 30 days. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Starbucks Corporation SBUX reported impressive first-quarter fiscal 2019 results, wherein both top and bottom lines surpassed the respective Zacks Consensus Estimate for the third straight quarter. Results benefited from robust performance by the Americas and China-Asia-Pacific segment and store openings.
Starbucks has a Zacks Rank #2 (Buy). The stock’s dividend yield is 2%. The company has expected earnings growth of 12.3% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 3% north over the past 30 days.
The Procter & Gamble Company PG reported second-quarter fiscal 2019 results, wherein top and bottom lines surpassed the Zacks Consensus Estimate. This marked the company’s 15th straight earnings beat.
Procter & Gamble has a Zacks Rank #2. The stock’s dividend yield is 2.9%. The company has expected earnings growth of 5.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.9% over the past 30 days.
Cisco Systems CSCO delivered second-quarter fiscal 2019 non-GAAP earnings of 73 cents per share, which beat the Zacks Consensus Estimate by a penny. Further, the figure rose 15.9% from the year-ago quarter.
Cisco has a Zacks Rank #2. The stock’s dividend yield is 2.6%. The company has expected earnings growth of 17.4% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 1.4% north over the past 30 days.
Philip Morris International Inc. PM reported fourth-quarter 2018 results, with both the top and the bottom line beating the Zacks Consensus Estimate.
Philip Morris has a Zacks Rank #2. The stock’s dividend yield is 5.2%. The company has expected earnings growth of 5.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 2% over the past 30 days.
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