Wall Street encountered higher bouts of volatility on Wednesday, after a turnaround on Tuesday, following a sell-off in the first three trading sessions of August. Historically, August has not been a favorable month for stocks, leading to confusion among investors about the future trajectory of the equity market.
A Roller-Coaster Ride for Investors
The U.S. stock market experienced fluctuations on Wednesday, failing to sustain Tuesday’s rebound that broke a three-day decline for major indices like the S&P 500. Notably, chip stocks took the lead in yesterday’s trading session, with notable names such as NVIDIA Corporation (NVDA) and Super Micro Computer, Inc. (SMCI) witnessing significant declines of 5.1% and 20.1%, respectively.
Despite a morning surge, the S&P 500 lost momentum in the afternoon and closed down by 0.8%. Monday had already seen a 3% drop, marking the largest single-day percentage decline since September 13, 2022.
The CBOE Volatility Index (VIX), known as Wall Street’s “fear gauge,” surged from 16.4 on Thursday to 38.6 on Monday, indicating heightened intraday volatility.
The Ongoing Battle Between Bulls & Bears
The current market turmoil is a result of the ongoing clash between market bulls and bears. Bulls are optimistic about a potential interest rate cut by the Federal Reserve to spur business investment, consumer spending, and economic growth, despite concerns that the Fed may have been overly cautious. In contrast, bears point to weaknesses in factory activity and labor markets that could potentially trigger a recession, debunking the idea of a Goldilocks economy.
Focusing on Stocks with Risk-Adjusted Returns
As investors navigate through uncertain market conditions, the focus should be on low-beta stocks with strong risk-adjusted returns. Low-beta stocks, with betas ranging from 0 to 1, offer stability compared to the broader market. Investing in low-beta stocks with positive earnings estimates indicates a company’s strong fundamentals and potential for long-term outperformance.
Pilgrim’s Pride Corporation (PPC)
Pilgrim’s Pride Corporation, specializing in chicken and pork products, is boosting profitability through strategic investments and operational enhancements. With a beta of 0.78, PPC has seen a 27.1% increase in its current-year earnings estimate over the past 60 days, projecting a remarkable 183.4% growth rate for the year.
Newmont Corporation (NEM)
Newmont, a gold producer and explorer, is advancing its growth initiatives such as the Tanami expansion. The recent acquisition of Newcrest positions NEM for future growth. With a beta of 0.47, NEM has witnessed a 14.5% rise in its current-year earnings estimate over the last 60 days, forecasting a 71.4% growth rate for the year.
ServiceNow (NOW)
ServiceNow is experiencing growth driven by the increasing adoption of its digital transformation workflows within organizations. As a key player in the IT service market, NOW boasts a beta of 0.99. Over the past 60 days, its current-year earnings estimate has increased by 2.2%, with an expected earnings growth rate of 28.1% for the year.
Year-to-date, shares of Pilgrim’s Pride, Newmont, and ServiceNow have gained 59.3%, 12.1%, and 9.9%, respectively.