Believe it or not, despite recent headlines and volatility, the bull market in U.S. stocks is still alive and well.
Calendar 2018 has been fairly bumpy relative to prior years, thanks to global inflation, trade and debt risks. But, the only U.S. stock market index, which hasn’t performed up to par this year is the Dow Jones Industrials Average, which is up 1% year-to-date. Meanwhile, the S&P 500 is up 5% year-to-date and the NASDAQ-100 is up 15% year-to-date.
Moreover, all of the major U.S. stock market indices remain solidly above their upward sloping 200-day moving averages.
In the big picture, the bull market for stocks is still in tact. That will likely remain the case so long as the Turkey debt crisis remains isolated. On the inflation front, the latest CPI print in the U.S. is 2.9%, which is up from where we were a year ago but isn’t a troublesome inflation rate, historically speaking. The 10-Year Treasury yield remains below 3%, so higher bond yields aren’t pressuring equity valuations (the forward earnings yield is presently above 6%). The yield curve hasn’t inverted yet, and it usually takes a while for inverted yield curves to cause stock market weakness.
Meanwhile, earnings growth remains strong across the board (25% so far in Q2, the highest growth rate since 2010), and economic fundamentals in the U.S. remain strong.
All together, I think this bull market in stocks will last. For now. Down the road, more risks will show up, and those risks could derail the bull market. But, as of today, I’m fairly confident on the bull market lasting until at least the end of 2018.
With that in mind, let’s take a look at the three stocks that are leading this bull market, and could continue to lead the bull market for foreseeable future.
Stocks Leading the Bull Market: Amazon (AMZN)
Without a doubt, the stock that is at the forefront of this bull market is e-commerce and cloud giant Amazon (NASDAQ:AMZN).
Year-to-date, AMZN stock is up 60%. Over the past year, AMZN stock is up 90%. During that stretch, the biggest correction was a 15% drop in early April 2018. Outside of that, the sell-offs in AMZN stock have been largely limited to 5% or less.
That is impressive resilience for such a big valuation, big growth stock. This resiliency speaks to the fact that Amazon’s growth narrative is just that good, and always getting stronger. Between the cloud, e-commerce, logistics, offline retail, pharmaceuticals, digital advertising and more, Amazon’s long-term growth narrative is only increasing in scope and magnitude.
Because of this, Amazon’s growth rates refuse to slow down. In fact, revenue growth is actually accelerating. Meanwhile, margins are also moving higher thanks to digital advertising and cloud growth. The end-result is super-charged profit growth.
Super-charged profit growth tends to create super-charged stock price performance. That is exactly what is happening with Amazon, and will continue to happen for the foreseeable future, barring any black swan events.
Stocks Leading the Bull Market: Nvidia (NVDA)
Tech has been the best-performing sector in the stock market for a while, and that is because of a flurry of next-gen technologies emerging to the forefront which have the potential to fundamentally change the way the world works. These technologies include AI, cloud computing, AR/VR, automation and more.
At the heart of all these next-gen, world-changing technologies is Nvidia (NASDAQ:NVDA), the chip company that designs the building blocks for stuff like AI and cloud computing.
Because of its robust exposure to multiple secular growth arenas, NVDA stock is up 33% YTD and 53% over the past year.
This big growth will continue, barring any black swan events. In the big picture, the data revolution is still in its early stages, meaning that all these next-gen markets that are powered by data (AI, automation, cloud computing, so on and so forth) are still in their infancy. That is why Nvidia’s revenue growth has been accelerating higher for several quarters now, and it will likely continue to remain robust going forward. Demand for the building blocks of AI won’t die down any time soon.
Thus, unless economic recession hits globally and demand for everything goes down, NVDA stock should continue to lead the bull market higher.
Stocks Leading the Bull Market: Costco (COST)
This one may come as a surprise, but technology isn’t the only sector leading the market higher.
Retail stocks have been doing quite well recently, and at the center of this retail resurgence is Costco (NASDAQ:COST). Mostly thanks to consumer confidence and stabilization in the brick-and-mortar retail format, retail sales growth in the U.S. has been red-hot all year long. The trend is showing no signs of slowing. Retail sales growth in July was a whopping 6%.
Concurrent to this bounce back in retail sales growth, Costco has been posting robust comparable sales growth of nearly 10% for the past several quarters. That has powered a 40% gain in COST stock over the past year.
More than that, COST stock is leading the charge for all of retail. The S&P Retail ETF (NYSEARCA:XRT) is up nearly 30% over the past year, a huge out-performance of the S&P 500’s 14% gain.
It is unlikely that retail sales growth remains this hot for that much longer. But, stable retail sales growth in the low single-digit range seems sustainable over the next several quarters, so long as the domestic economy remains healthy. Thus, COST stock should continue to lead retail stocks higher over the next several months.
As of this writing, Luke Lango was long AMZN, NVDA and COST.