Buy the 2 best performing Dow stocks today

Investors stepped on the accelerator today and realized a good week for the Dow Jones Industrial Average into a big one. The Dow Jones added about 823 points today and nearly 1,600 points, or 5.3%, for the week to rebound from a sharp drop the previous week.

The market struggled throughout the year as investors feared the Federal Reserve’s hawkish policy aimed at curbing soaring inflation which turned out to be stronger than expected. The Fed is also in the process of reducing its balance sheet by $9 trillion, which effectively involves withdrawing liquidity from the economy. All of this has made the possibility of a recession much higher.

But this week, it looks like investors have finally settled in and bought some of the decline, with 28 of 30 Dow Jones stocks ending in the green today. I would recommend looking at the top two finishers in Dow today, as both stocks look like good investment opportunities.

Take advantage of the coming boom in IT spending

A recent report from Swiss credit (CS 5.50%) suggests that companies may increase their spending on IT services in the coming years.

Analysts Sami Badri and George Engroff said in a report that they expect spending on back-office and front-office applications to grow by more than 10% and 9%, respectively, in 2026, compared to 2021.

Few are better positioned to take advantage of it than the cloud giant Selling power (RCMP 7.44%)whose stock is up 7.5% today and more than 16% over the past month.

Credit Suisse also conducted a survey that showed 18% of respondents believe Salesforce would see the biggest increase in IT spending in 2022 year-over-year, excluding other tech giants. Microsoft (MSFT 3.42%), Amazon (AMZN 3.58%)and ServiceNow (NOW 3.82%).

Salesforce’s business has held up better during inflation than many might have imagined. Even trading at 39 times forward earnings, the stock looks attractive given its huge market opportunity.

Look good after stress testing

The Dow’s second best performance today was Goldman Sachs (GS 5.79%)with shares of the investment bank up 5.8% today.

The Federal Reserve released the results of its annual stress tests last night and Goldman performed well, showing it could easily maintain healthy capital levels even in an incredibly deep recession.

The Fed conducts stress tests every year to ensure that the banking system is sustainable and able to withstand an economic downturn. This year, it tested the banks in a situation where unemployment between the fourth quarter of 2021 and the first quarter of 2024 would increase and peak at 10.3%. Commercial real estate prices would fall by 40% and stock prices would fall by 55%.

During that nine-quarter period, Goldman would suffer more than $18 billion in loan losses and nearly $21 billion in trading and counterparty losses. However, its Common Equity Tier 1 (CET1) ratio, a measure of a bank’s Tier 1 capital expressed as a percentage of its risk-weighted assets such as loans, would fall from 14.2% to 8.4%, which is still a lot over the very basic minimum requirement of 4.5%.

The results are better than Goldman’s last year and could allow the bank to benefit from lower regulatory capital requirements, and therefore return more capital to shareholders. I expect the bank to release more information on this on Monday. Trading at around 8 times forward earnings, I like the stock.

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