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“What has been will be again, what has been done will be done again; there is nothing new under the sun.”
On Wednesday, major news organizations declared a victory for Republicans in taking majority control of the House of Representatives. While GOP expectations of a “red wave” never came to fruition, they were able to remove Democrats from vital positions of power. And with Democrats retaining control of the Senate, congressional leadership will be split for at least the next two years, potentially thwarting President Biden’s legislative agenda for the remainder of his term.
How have markets historically fared under a split Congress? We can see below that over the last 40+ years, the S&P 500 has returned 13.7% on average when we have gridlock in Washington:
Image Source: Zacks Investment Research
Over this sample, it’s clear that markets applaud the ‘certainty’ that comes with a divided Congress, as one side prevents the other from passing aggressive legislation. And as we attempt to make our way out of this bear market, it’s nice to have positive historical statistics like this on our side.
Still, major headwinds remain for the economy, including lingering inflation and slowing earnings growth. Fourth-quarter earnings estimates have come down significantly in recent weeks, with analysts now expecting negative earnings growth and substantially lower revenue growth. And while it’s possible that the October low marked the bottom in the market, it’s simply too early to call and we won’t know it until after the fact.
The most prudent course of action, for now, is to target stocks that have displayed immunity to the year’s volatility and are still showing positive trends. The Zacks Large Cap Pharmaceuticals industry is currently ranked in the top 21% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Digging a bit deeper, this group has widely outperformed the market this year with a nearly 7% return:
Image Source: Zacks Investment Research
Despite the impressive price performance, the Zacks Large Cap Pharmaceuticals industry remains relatively undervalued:
Image Source: Zacks Investment Research
Quantitative research studies have shown that approximately half of a stock’s future price movement can be attributed to its industry group. By focusing on stocks within the top industries, we can dramatically improve our odds of success. Let’s take a deeper look at a leading stock within this highly-rated industry.
Eli Lilly discovers, develops, and markets human pharmaceuticals worldwide. The company’s array of products serves a vast number of therapeutic areas including diabetes, neuroscience, oncology and immunology, all of which are high growth areas that represent significant commercial potential. LLY boasts a dependable pipeline and is one of the world’s largest pharmaceutical companies.
Eli Lilly most recently announced Q3 earnings results earlier this month of $1.98/share, a 0.51% beat over consensus estimates. The pharmaceutical giant boasts a market capitalization of $335.4 billion and pays a $3.92 (1.11%) dividend. LLY Shares have bucked the downtrend this year, advancing nearly 31% while the market continues in a deep correction.
Image Source: StockCharts
Looking ahead to next year, the streak is expected to continue with analysts projecting EPS growth of 18.31% to $9.24/share. Revenues are anticipated to climb 7.67% to $30.78 billion.
In an uncertain economic environment, LLY has shown relatively little volatility while rewarding shareholders with substantial gains. Given a historically positive divided Congress in the near future, LLY investors have reason to remain bullish heading into 2023.
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How Markets Have Fared Under a Divided Congress
“What has been will be again, what has been done will be done again; there is nothing new under the sun.”
On Wednesday, major news organizations declared a victory for Republicans in taking majority control of the House of Representatives. While GOP expectations of a “red wave” never came to fruition, they were able to remove Democrats from vital positions of power. And with Democrats retaining control of the Senate, congressional leadership will be split for at least the next two years, potentially thwarting President Biden’s legislative agenda for the remainder of his term.
How have markets historically fared under a split Congress? We can see below that over the last 40+ years, the S&P 500 has returned 13.7% on average when we have gridlock in Washington:
Image Source: Zacks Investment Research
Over this sample, it’s clear that markets applaud the ‘certainty’ that comes with a divided Congress, as one side prevents the other from passing aggressive legislation. And as we attempt to make our way out of this bear market, it’s nice to have positive historical statistics like this on our side.
Still, major headwinds remain for the economy, including lingering inflation and slowing earnings growth. Fourth-quarter earnings estimates have come down significantly in recent weeks, with analysts now expecting negative earnings growth and substantially lower revenue growth. And while it’s possible that the October low marked the bottom in the market, it’s simply too early to call and we won’t know it until after the fact.
The most prudent course of action, for now, is to target stocks that have displayed immunity to the year’s volatility and are still showing positive trends. The Zacks Large Cap Pharmaceuticals industry is currently ranked in the top 21% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Digging a bit deeper, this group has widely outperformed the market this year with a nearly 7% return:
Image Source: Zacks Investment Research
Despite the impressive price performance, the Zacks Large Cap Pharmaceuticals industry remains relatively undervalued:
Image Source: Zacks Investment Research
Quantitative research studies have shown that approximately half of a stock’s future price movement can be attributed to its industry group. By focusing on stocks within the top industries, we can dramatically improve our odds of success. Let’s take a deeper look at a leading stock within this highly-rated industry.
Eli Lilly & Co. (LLY - Free Report)
Eli Lilly discovers, develops, and markets human pharmaceuticals worldwide. The company’s array of products serves a vast number of therapeutic areas including diabetes, neuroscience, oncology and immunology, all of which are high growth areas that represent significant commercial potential. LLY boasts a dependable pipeline and is one of the world’s largest pharmaceutical companies.
Eli Lilly most recently announced Q3 earnings results earlier this month of $1.98/share, a 0.51% beat over consensus estimates. The pharmaceutical giant boasts a market capitalization of $335.4 billion and pays a $3.92 (1.11%) dividend. LLY Shares have bucked the downtrend this year, advancing nearly 31% while the market continues in a deep correction.
Image Source: StockCharts
Looking ahead to next year, the streak is expected to continue with analysts projecting EPS growth of 18.31% to $9.24/share. Revenues are anticipated to climb 7.67% to $30.78 billion.
In an uncertain economic environment, LLY has shown relatively little volatility while rewarding shareholders with substantial gains. Given a historically positive divided Congress in the near future, LLY investors have reason to remain bullish heading into 2023.