Wall Street rebounded on the first trading day of fourth-quarter 2021 after a tumultuous September. September is historically the worst-performing month on Wall Street and this year, it was the most disastrous in a decade. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 4.3%, 4.8% and 5.3%, respectively.

In third-quarter 2021, the Dow slid 1.9% owing its meltdown last month. However, the S&P 500 and the Nasdaq Composite advanced 0.2% and 0.4%, respectively, due to their strong performance in July and August. Nevertheless, on Oct 1, the Dow, the S&P 500 and the Nasdaq Composite gained 1.4%, 1.2% and 0.8%, respectively.

As we have entered the last quarter of this year, market participants remain concerned about how Wall Street will behave in these three months. Some of the market-disturbing factors like higher inflationary pressure, Fed’s possible tapering of the quantitative easing program this year and concerns about global economic growth, especially China’s booming property development market, are already visible.

However, some recently released economic data like durable goods orders, personal spending and ISM manufacturing PMI indicated that the fundamentals of the U.S. economy remain solid. A significant drop in stock market valuations in September and the upcoming third-quarter earnings results could be the other positives.

Catalysts for Fourth Quarter

Durable goods orders surged 1.8% in August. Moreover, new orders for core capital goods (non-defense capital goods excluding aircraft) rose 0.5% in August. Year over year, new orders for core capital goods jumped 16.4%. This metric is a closely watched proxy for a business investment plan. Shipments of core capital goods rose 0.7% in August. This metric is used to calculate equipment spending in GDP measurement.

In addition to strong business spending, consumer spending rebounded in August with a gain of 0.8% after declining 0.1% in July. Consumer spending is likely to remain elevated as we are entering the holiday sales season. Holiday retail sales are likely to climb this year as projected by various major market researchers like Deloitte, Mastercard SpendingPulse, Bain and KPMG. Notably, consumer spending accounts for nearly 70% of U.S. GDP.

The Institute of Supply reported that the U.S. manufacturing PMI rose to 61.1% in September, its highest since May. The consensus estimate was 59.6% and August’s reading was 59.9%. Notably, any reading above 50% means an expansion in manufacturing activities.

The Department of Commerce raised the U.S. GDP growth rate for second quarter 2021 to 6.7% from its initial estimation of 6.5%.

Finally, a major driver of stock markets in October and November could be the third-quarter 2021 earnings results. Corporate profits are likely to remain elevated after an impressive performance in the first two quarters of this year. Rising cost pressures amid supply-chain disruptions along with labor and material shortages will keep the spotlight on margins.

Our current projection shows that total third-quarter earnings for the S&P 500 Index are expected to be up 26% from the same period last year on 13.9% higher revenues. Moreover, total earnings of the S&P 500 Index are projected to climb 42.6% on 13.5% higher revenues in 2021 and increase 9.8% on 5.2% higher revenues in 2022.

Our Top Picks

We have narrowed down our search to five large-cap stocks (market capital > $10 billion) that have strong growth potential for the fourth quarter. These stocks have seen positive earnings estimate revisions in the last 30 days amid September’s turmoil and are currently trading at a lucrative discount to their 52-week highs. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy).  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 in the past month.

Image Source: Zacks Investment Research

Tesla Inc. (TSLA Quick QuoteTSLA - Free Report) has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a major chunk of the company’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.

In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.

The company has an expected earnings growth rate of 91.3% for fourth-quarter 2021. The Zacks Consensus Estimate for its fourth-quarter earnings improved 4.8% over the last 7 days. The stock is currently trading at 13.9% below its 52-week high.

Nucor Corp. (NUE Quick QuoteNUE - Free Report) is a leading producer of structural steel, steel bars, steel joists, steel deck and cold-finished bars in the United States. It operates through three segments: Steel Mills, Steel Products, and Raw Materials.

The company is seeing consistent momentum in the non-residential construction market. Demand in non-residential construction markets was strong in the most recent quarter. Nucor’s downstream products unit is benefiting from continued strength in the non-residential construction markets.

The company has an expected earnings growth rate of more than 100% for fourth-quarter 2021. The Zacks Consensus Estimate for fourth-quarter earnings improved 16.9% over the last 30 days. The stock is currently trading at 24.2% below its 52-week high.

Regeneron Pharmaceuticals Inc. (REGN Quick QuoteREGN - Free Report) is benefiting from strong demand for Eylea and Dupixent. Continued growth in Eylea and Dupixent through further penetration in existing indications and a promising late-stage pipeline bode well. The approval of Libtayo in the lucrative indication of NSCLC and BCC should also boost sales.

The company has an expected earnings growth rate of 67.6% for fourth-quarter 2021. The Zacks Consensus Estimate for its fourth-quarter earnings improved 80.2% over the last 30 days. The stock is currently trading at 16.9% below its 52-week high.

KKR & Co. Inc. (KKR Quick QuoteKKR - Free Report) operates as an investment management firm managing investments such as private equity, energy, infrastructure, real estate, credit strategies and hedge funds. The company specializes in acquisitions, leveraged buyouts, management buyouts, credit special situations, growth equity, mature, mezzanine, distressed, turnaround, lower-middle and middle-market investments.

The company has an expected earnings growth rate of 95.9% for fourth-quarter 2021. The Zacks Consensus Estimate for its fourth-quarter earnings improved 2.1% over the last 30 days. The stock is currently trading at 9% below its 52-week high.

Steel Dynamics Inc. (STLD Quick QuoteSTLD - Free Report) is expected to gain from acquisitions as well as strong liquidity and efforts to expand capacity. The acquisitions of Heartland and United Steel Supply have boosted Steel Dynamics' shipping capabilities. Moreover, the buyout of Zimmer will support its raw material procurement strategy at its new Texas flat roll steel mill.

The company is also expected to gain from its investments to beef up capacity and upgrade facilities. It is executing several projects that should add to capacity and boost profitability. The electric-arc-furnace flat roll steel mill will strengthen its steelmaking capacity and value-added product capability.

The company has an expected earnings growth rate of more than 100% for fourth-quarter 2021. The Zacks Consensus Estimate for its fourth-quarter earnings improved 16.2% over the last 30 days. The stock is currently trading at 21.6% below its 52-week high.