Stocks staged a dramatic reversal last week, driving the bulls back in charge as markets look to put a disappointing month of February in the rearview mirror. Both the S&P 500 and Nasdaq found support at key technical levels, bolstering the case that the rally may be just getting underway. On the week, the S&P 500 climbed 1.9%, the Nasdaq advanced 2.6%, while the Dow rose 1.75%. Several leading stocks showed strength on heavy volume, a signal that may bode well for some March momentum.

Treasury yields have been a headwind for stocks lately, as the yield on the 10-year Treasury note reached a 4-month high last week. Still, the benchmark yield closed the week about 12 basis points off the highs, as markets await Fed Chairman Jerome Powell’s testimony before Congress on Tuesday and Wednesday. Powell’s recent introduction of the “disinflationary” wording has sent equity markets higher this year, but has done little to tame treasury yields thus far.

We’ll also receive more jobs data with Friday morning’s release of the February employment report. The non-farm payrolls report is expected to show a gain of 225,000 following January’s better-than-anticipated 517k figure. The unemployment rate is projected to remain at 3.4%, the lowest dating back to 1969.

Stocks to Watch

Building material and product companies are one area that has been leading the charge off the lows of last year. The Zacks Building Products – Retail industry group currently ranks in the top 22% out of more than 250 Zacks Ranked Industries. Because this group is ranked in the top half of all industries, we expect it to outperform the market over the next 3 to 6 months. Also note the favorable valuation metrics for this industry group below:

Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Three separate stocks within this leading industry have all been outperforming year-to-date. Tecnoglass (TGLS Quick QuoteTGLS - Free Report) is a Zacks Rank #2 (Buy) stock that produces, markets, and installs architectural systems for commercial and residential construction industries. TGLS offers low emissivity, laminated, aluminum, and digital print glass products, in addition to windows, doors, dividers, and awnings.

Tecnoglass has exceeded earnings estimates in each of the past four quarters with an average surprise of 21.54%. Just last week, TGLS reported Q4 earnings of $1.09/share, beating the $0.99 Zacks Consensus Estimate by 10.1%. TGLS shares have advanced 38% this year.

Image Source: Zacks Investment Research

Fastenal Company (FAST Quick QuoteFAST - Free Report) engages in the wholesale distribution of industrial and construction supplies internationally. The company provides fasteners, bolts, nuts, screws, studs, and washers used in manufactured products and construction projects. FAST also offers supplies and hardware such as machinery keys, concrete anchors, metal framing systems, and wire ropes.

FAST has surpassed earnings estimates in each of the past four quarters, posting an average surprise of 3.34% over that timeframe. A Zacks Rank #2 (Buy), Fastenal has seen its shares rise nearly 15% this year.

Image Source: Zacks Investment Research

Builders FirstSource (BLDR Quick QuoteBLDR - Free Report) manufactures and supplies building materials and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. BLDR offers lumber and lumber sheet goods, along with manufactured products such as wall panels, stairs, windows, and door units. The company also provides specialty products such as siding, exterior trim, roofing, cabinets, and insulation.

BLDR has delivered a trailing four-quarter average earnings surprise of 68.21%. BLDR stock is ranked favorably by our Zacks Style Scores, with a top ‘A’ rating in each of our Value, Growth, and Momentum categories. Builder FirstSource stock has been on a tear this year, climbing more than 37%.

Image Source: Zacks Investment Research

How to Approach This Rally

We have more in the way of momentum than at any point in the last year, along with broader participation as more stocks participate in this rally. Leadership from the more aggressive pockets of the market (consumer discretionary, information technology, communication services) is another positive sign that points to a higher probability of more bullish outcomes moving forward.

Still, we want to always approach the market from a risk-first perspective. That means legging into long positions and building out our portfolio in increments, paying particular attention to which industry groups and individual stocks are leading the charge.

And while the end of last week may have marked a significant turning point, we’ll need to see more confirmation in the way of higher highs and increased volume. The next few weeks should provide some clarity as we’ll see how stocks react to a slew of incoming data.