U.S. stock markets are firing on all cylinders supported by strong economic data, soaring consumer and business optimism, and a massive stimulus provided by the government to support the pandemic-ridden economy.
Wall Street started second-quarter 2021 on a high-note after finishing an impressive first quarter. The new bull market, which was formed in April 2020 following the coronavirus-led shortest bear market, gathered momentum in 2021. At this stage, it will be prudent to invest in momentum stocks with a favorable Zacks Rank.
Consumer and Business Optimism Skyrockets
On Mar 30, the Conference Board reported that Consumer Confidence in March jumped to a one-year high of 109.7 from the downwardly revised 90.4 in February. The sub-index for Expectations for the next six months rose to 109.6 from 90.9 in the prior month, marking the highest level in 21 months.
On Mar 26, the University of Michigan reported that the final Consumer Sentiment Index in March climbed to a one-year high of 84.9 from a reading of 76.8 in February. The sub-index of Economic Outlook for the next 12 months surged to a one-year high of 108 in March from 83 in February.
Meanwhile, the ramp up of nationwide COVID-19 vaccination by the government resulted in removal of stringent restrictions on business by state and local governments. This in turn raised the possibility of faster-than-expected economic recovery, lifting the confidence of U.S. businesses.
Robust Economic Data
The Department of Labor reported that the U.S. economy added 916,000 nonfarm jobs in March compared with an upwardly revised 468,000 in February. The consensus estimate was 657,000. March's job addition was the highest since August 2020.
The unemployment rate declined to 6% in March from 6.2% in February. The real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) dropped to 10.7% in March from 11.1% in February.
The Institute of Supply Management (ISM) reported that its manufacturing Purchasing Managers' Index (PMI) for March soared to 64.7% from 60.8% in February, marking the highest reading since December 1983 and the 10th consecutive month of growth. Out of the total 18 industries, 17 reported expansion.
The ISM reported that its Services PMI soared to 63.7% in March from 55.3% in February, marking the highest level since the inception of this index in 1997. All 18 services industries expanded in March. Notably, any reading above 50 means expansion of manufacturing or services activities.
U.S. GDP and Corporate Profits Likely to Soar in 2021
Projections for U.S. GDP and corporate profits are increasing systematically since the beginning of this year. On Mar 17, the Fed raised its GDP forecast for 2021 to 6.5% from 4.2% in December. On Mar 10, the Wall Street Journal reported that economists on average expect U.S. GDP to expand nearly 6% this year from 4.9% in February and 4.3% in January.
On Mar 9, the OECD estimated that the latest fiscal stimulus, along with faster vaccination, could increase U.S. GDP growth to 6.5% in 2021. The Oxford Economics predicted 7% U.S. GDP growth in 2021. On Apr 1, the Atlanta Fed predicted that the GDP will surge 6% in first-quarter 2021.
Meanwhile, as of Mar 31, projections for total earnings of S&P 500 companies in 2021 have jumped 24.4% year over year on 8.4% higher revenues. Moreover, projections for total earnings of these companies in 2022 are up 14.8% year over year on 6.3% higher revenues. Notably, total earnings of same companies plummeted 13% year over year in 2020 on 1.8% lower revenues owing to the global outbreak of the deadly novel coronavirus.
Our Top Picks
We have narrowed down our search to five large-cap (market capital > $10 billion) stocks that have popped more than 20% year to date and have strong upside left for the rest of 2021. These stocks have witnessed robust earnings estimate revisions in the last 7 days highlighting solid business prospects. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
L Brands Inc (NYSE:LB). LB operates as a specialty retailer of women's intimate and other apparel, personal care, and beauty and home fragrance products. It operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International.
The company has an expected earnings growth rate of 39.6% for the current year (ending January 2022). The Zacks Consensus Estimate for its current-year earnings has improved 10% over the last 7 days. The stock price has soared 66% year to date.
The Goldman Sachs Group Inc (NYSE:GS). GS operates as an investment banking, securities and investment management company worldwide. It operates in four segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
The company has an expected earnings growth rate of 25.8% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 3.1% over the last 7 days. The stock price has advanced 22.6% year to date.
Exxon Mobil Corp. XOM explores and produces crude oil and natural gas in the United States, Canada/Other Americas, Europe, Africa, Asia, and Australia/Oceania. It operates through the Upstream, Downstream and Chemical segments.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 5.1% over the last 7 days. The stock price has climbed 37% year to date.
RH (NYSE:RH) RH operates as a retailer in home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings.
The company has an expected earnings growth rate of 19.1% for the current year (ending January 2022). The Zacks Consensus Estimate for its current-year earnings has improved 13% over the last 7 days. The stock price has rallied 32.4% year to date.
Devon Energy Corp. DVN is primarily engaged in the exploration, development, and production of oil, natural gas and natural gas liquids in the United States and Canada.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 5% over the last 7 days. The stock price has jumped 42% year to date.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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