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Market Rally Boosts Household Net Worth: 5 Top-Ranked Picks

Zacks

On Mar 8, a report of Federal Reserve stated that the U.S. household wealth moved further into record territory of $98.75 trillion in the fourth quarter of 2017. This big push in household wealth was primarily driven by stock market rally and soaring real estate prices.

The U.S. economy is currently positioned on a strong growth trajectory. The unemployment rate is near its 17-year low at 4.1%. Expected gains in incomes, jobs and after-tax pay of U.S. consumers are successfully mitigating worries about rising interest rates.

Although the boost in household net worth was powered by the real estate boom and stock market rally, real estate prices in the United States is nearing its peak level. However, stock market momentum remained largely unhindered despite the correction experienced in February. This is why it makes great sense to invest in those stocks which provided significant returns in last year.

Net Worth Spikes in Q4

The Federal Reserve report stated that U.S. household net worth (including the value of all assets like stocks and real estate less liabilities like mortgage and credit-card debt) increased more than $2 trillion in the fourth quarter of 2017. The value of U.S. stock portfolios jumped $1.35 trillion in the October-December quarter while the value of real estate grew $511.2 billion.

Household borrowing rose at a 5.2% per annum in the same time period with liabilities increasing by $208.6 billion. Consumer credit increased at a 7.8% annual rate from 3.6% sequentially. Households have $9.272 trillion in deposits, which include checking and savings accounts as well as certificates of deposit.

Real Estate Prices Hit Peak Levels

On Mar 1, 2018, global property analysts CoreLogic reported that U.S. house prices have returned to peak levels, recovering 51% nationally after plummeting 33% during the recession a decade ago.

In the third quarter of 2017, home equity experienced a year-over-year gain of $14,888. This reflects that the housing market has widely recovered since the trough of 2008-2009 recession periods. But since home prices have already hit peak levels, further gains in real estate value were unlikely to occur in the near future.

Stock Market Continues to Fly High

During 2017, the S&P 500 index surged 20% and the Dow grew 25%. Several Wall Street experts believe that the index will increase 5-10% in 2018 courtesy of tax cuts and continued strength in the economy. A recent survey among economists by The Wall Street Journal predicted U.S. GDP growth of 2.8% in 2018, better than 2.5% in the fourth quarter of 2017.

Moreover, the S&P 500 declined in February 2018 by nearly 10% primarily due to a stock market correction. Subsequently, the benchmark has recovered and is currently up 2.4% year to date. Information Technology, Consumer Discretionary, Financials and Healthcare are primarily responsible for the recovery. The fact that the rally has the resilience to recover from the recent downturn means that it is unlikely to peter out quickly.

Our Top Picks

Substantial increase in wealth could make many Americans more confident and lead them to spend more fueling economic growth. According to Edward Wolff of New York University, in 2016, average household wealth had fully recovered from the Great Recession and was 7% higher than it had been in 2007. But median wealth was still 34% below its pre-recession level. This implies that there is sufficient headroom for household wealth to increase further in the days ahead.

All the above-mentioned factors are likely to help the stock market maintain momentum albeit at a slightly slower pace in 2018. The U.S. bull market is celebrating its ninth birthday in March, and if it continues till August, it will officially become the longest in history.

At this stage, we have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and provided significant returns in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

SolarEdge Technologies Inc. SEDG: The company expects earnings growth of 20.2% for the current year. The Zacks Consensus Estimate for the current year has improved 32% over the last 30 days. The stock has gained 276% in the past year.

Weight Watchers International Inc. WTW: The company expects earnings growth of 29.1% for the current year. The Zacks Consensus Estimate for the current year has improved 28.3% over the last 30 days. The stock has gained 259.3% in the last year.

PetMed Express Inc. PETS: The company expects earnings growth of 51.3% for the current year. The Zacks Consensus Estimate for the current year has improved 4.1% over the last 30 days. The stock has gained 146% in the last year.

Fibria Celulose S.A. FBR: The company expects earnings growth of 157.4% for the current year. The Zacks Consensus Estimate for the current year has improved 118.1% over the last 30 days. The stock has gained 145.5% in the past year.

NVIDIA Corp. NVDA: The company expects earnings growth of 28.9% for the current year. The Zacks Consensus Estimate for the current year has improved 32.1% over the last 30 days. The stock has gained 144.8% in a year's time.

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