Forget Trade Tensions, Focus on US Economy: 4 Top Picks

On May 13, trade tensions took a heavy toll on U.S. stocks once again. The Dow and the S&P 500 suffered their worst losses since Jan 3, triggered by China’s decision to impose retaliatory tariffs on American goods worth $60 billion. While some conciliatory noises emerged from the White House, China’s state-sponsored media adopted an abrasive tone on the simmering trade conflict.

Meanwhile, key members of the Federal Reserve stated that the American economy is much stronger relative to China. And investors should focus on its resilience and ignore medium-term turbulence in the equity markets. This is why it makes sense to invest in select consumer discretionary stocks at this time.

Kashkari, Rosengreen Emphasize US Economy’s Strength

According to Minneapolis Fed President Neel Kashkari, the United States holds the edge in its trade conflict with China. Despite the continuing slide in equity markets, Kashkari believes major economic metrics remain stable as the trade war intensifies. Speaking to CNBC, he said, the United States “is in a very strong position” compared to China.

Firstly, the U.S. economy is much larger and “is much less sensitive to trade.” On the other hand, much of China’s prosperity is linked to the export-driven nature of its economy. In fact, exports make up a much-larger chunk of the economy compared to the United States. This is why the United States has the advantage in a retaliatory battle of escalating tariffs.

Boston Fed President Eric Rosengreen echoed Kashkari’s views on America’s economic strength. He said that if the trade conflict was short lived it would have little impact on the U.S. economy. Rosengreen also thinks that the domestic economy is robust enough to “withstand the trade issues that are coming up right now.”

Economic Indicators Remain Robust

U.S. GDP increased at 3.2% in the first quarter of 2019, exceeding the consensus estimate of 2.1% by a wide margin. The figure is also significantly higher than the pace of 2.2% recorded in the last quarter of 2018. This is also the first time since 2018 that first-quarter GDP has breached the 3% barrier. (Read: 5 Consumer Discretionary Stocks to Buy as Q1 GDP Surges)

Meanwhile, the unemployment rate declined from 3.8% to 3.6% in April. This is the lowest level registered since December 1969 and significantly better than the estimated rate of 3.8%. Also, the economy added 263,000 jobs last month. This marks the 100th consecutive month of job growth for the U.S. economy. (Read: Unemployment Hits 50-Year Low: 6 Business Services Picks)

Factory orders rebounded in March, increasing 1.9%. This is the largest increase experienced since August 2018. Strong demand for transportation equipment was the primary reason for the resurgence in factory orders. An increase in orders for electronic equipment and computers also contributed to March’s gains.

Our Choices

Comments from top Fed officials indicate that the U.S. economy remains robust in the midst of significant equity market turbulence. This is why it holds the edge in a likely protracted trade war with China. These statements are borne out by recently released data, which serve to underline America’s economic strength.

Investing in consumer discretionary stocks, the powerhouse of the U.S. economy remains prudent at this time. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. GIII is a leading manufacturer and distributor of apparel and accessories under licensed brands, owned brands and private label brands.

G-III Apparel Group has a VGM Score of A. The company’s expected earnings growth for the current year is 15.3%. The Zacks Consensus Estimate for the current year has improved by 6.5% over the last 60 days.