20 hottest US stocks

Global stockmarkets have been sold off in recent sessions, but America is still the only place to gain exposure to certain sectors. Lee Wild reveals where the hot money's going.

US markets continued a nine-year bull run through the summer, driven by strong domestic economic growth and the promise of further benefits for corporate America from President Trump's reform programme. Concerns about rich valuations and a trade war with China were brushed aside as the Dow Jones claimed a new record high in early October.

In fact, the Dow gained 1.9% in September, taking upside for 2018 so far to 7%. The runaway Nasdaq Composite (see chart below) was up almost 15% for the year to date despite a 0.8% decline last month. By way of comparison, the FTSE 100 rose 1% in September, but was still down 6% over nine months.

Both US indices ended September strongly, but October has started badly for equity markets. Yes, Brazil's up almost 13% so far in 2018, but London is down 8% at 7,034, the Dow is up only 3.5% at 25,598, and Nasdaq up 5.9% at 7,422. In October alone, the Nasdaq is down 7.8%! Things haven't been this bad for the tech-heavy index for years.

Source: TradingView        Past performance is not a guide to future performance

Blame for the rout is pinned on rising US treasury yields, as stronger economic data increases the threat of further interest rate hikes to combat rising inflation. Higher rates raise the cost of mortgages and loans, curbing spending and price increases. It also means corporate America must absorb more expensive debt. Often, this can be an indicator that the economic cycle is at or nearing maturity, and that a recession is approaching.

However, rising bond yields are only one potential banana skin for this bull market. Earnings season is upon us, and corporate profits will need to be good. A trade war with China cannot be good for anyone, and some companies, especially US tech plays, command aggressive valuations. 

It remains to be seen if the current sell-off has legs, or whether it is a minor correction which generates fresh demand for stocks at lower prices. Despite recent hikes, interest rates remain near historic lows, and the tightening cycle may have some way to run before borrowing costs return to what might be a 'new normal', i.e. nowhere near the 6% we’ve seen in the past, but higher than we are now. 

This does raise the risk of a policy error by the US Federal Reserve as it tries to maintain strong economic growth while also preventing inflation spiralling out of control. Uncertainty around which way things will go is bound to cause episodes of volatility on equity markets, so be warned. 

Just watch the VIX index, or so-called fear gauge, which calculates expectations for volatility over the next 30 days. It's up by two-thirds in the past week to a three-month peak of 24.5 Thursday, above its long-term average of 20. It hasn't traded there since April.

Trading activity in September

There was mixed trading in US stocks on the interactive investor platform during September. UK investors looking to diversify their portfolio with exposure to technology themes have little choice but to look across the pond. It's why many of the tech titan regularly dominate the most-traded list.

There are plenty of interesting trades here, none more so than Tesla. The electric car maker continues to divide opinion, and it's often the behaviour of maverick founder and chief executive Elon Musk that causes problems. 

Tesla shares began September at a five-month low, down 35% from a near-record $387 reached just four weeks earlier. Admitting to the journalists he works 120-hour weeks and takes sedatives isn't great for investor confidence, while talk of taking the firm private is unsettling. Some analysts also fear rising costs will lose Tesla about $6,000 for every Model 3 it sells.  

We'll see if it does. In the meantime, plenty are prepared to back Musk and take the opportunity to pick up cheap stock.

One of Tesla's rivals was making waves on the interactive investor platform last month. Chinese firm NIO Inc listed in New York on 12 September at an IPO price of $6.26. The stock traded as low as $5.35 in quick time, peaked briefly at $13.80 before revisiting sub-$6. They've since rallied to $7.80.

Another recent float had buyers out in droves last month. Cannabis grower Tilray listed in New York at $17. Two months later they were worth an incredible $300. In September alone, the stock rose as much as 360%. Even after a bit of profit taking, they finished the month with a four-week gain of 120%! The US Drug Enforcement Administration has approved importation of cannabis for medical research, while Canada legalises marijuana on 17 October. Can the stock go higher, or is Tilray heading for a nasty comedown?

Source: TradingView        Past performance is not a guide to future performance

Facebook was down over 6% last month, showing little sign of a sustained share price recovery from slowing growth and hit to profits flagged in July. Investors remain fairly evenly split on whether it's time to buy or not. It's more or less 50:50 at Netflix, too, and at Advanced Micro Devices which soared almost 23% for the month.

Investors were keen to exit Twitter before its latest plunge. Down 19% in September alone, the stock is now glued to technical resistance at around $27.70. This level has been significant in the past. Will it save Twitter this time?

Amazon remains hugely popular, heading the leaderboard last month. Buyers dominated activity in Apple shares too and outnumbered sellers of Microsoft stock 2:1.

*Prices as at close of business 10 October

**Nio Inc listed in New York on 12 September at $6.26

#Tilray listed in New York on 19 July at $17