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Fourth-Quarter Rally Takes Shape: Key Stocks to Watch
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After surging on Monday to kick off the week, stocks finished rangebound on Tuesday as investors digested more third-quarter earnings reports. The Q3 earnings season is still in the early innings but is off to a solid start. Earnings remain on pace to exceed expectations, potentially putting an end to the corporate earnings recession. The season heats up this evening with heavyweights Tesla and Netflix reporting after the bell.
Yesterday we learned that retail sales rose 0.7% in September, more than double the 0.3% consensus estimate. The surprise reading underscores the willingness of the American consumer to spend, but also makes the Fed’s job more difficult. Odds of a continued interest rate pause scaled back a bit to 87.5% at the upcoming November 1st meeting.
October – Another Bear Killer?
Last year’s bear market reached a trough in October. More recently, the pullback that began in late July may be coming to an end as stocks have risen broadly off the early October lows. The month of October has normally been a great time to buy, and we now have favorable seasonality on our side.
We are in the midst of the historically bullish fourth quarter (not to mention a pre-election year, the strongest out of all 4 years of the Presidential Cycle). Dating back to 1971, the Nasdaq has rallied in Q4 from its October low into year-end in 46 of 52 years (88.5% of the time), with an average gain of 9.5%. Of the six losses, only one year (2007) was a pre-election year. Needless to say, these are pretty favorable odds.
The Nasdaq’s best year-end rally came in 1998 during the tech run-up, when the index soared 54.5%. Stocks continue to climb a wall of worry in the current landscape as concerns are widespread. Remember, markets tend to surprise the masses.
If markets do in fact rally into year-end, where should we look?
Stocks to Watch
Big tech has dominated returns this year and the trend appears likely to continue in the fourth quarter. Chip giant Nvidia (NVDA - Free Report) came under pressure yesterday after the U.S. Commerce Department tightened its restrictions on the export of artificial intelligence chips and manufacturing equipment to China. This is not the first time the Biden administration has sought to prevent Chinese military and companies from importing advanced semiconductors.
While Nvidia receives between 10-20% of its AI sales from China, overall demand is so strong that the company will likely reroute the chips to other customers. Nvidia doesn’t expect the new trade restrictions to have a meaningful impact on its results in the short-term.
NVDA stock, a Zacks Rank #1 (Strong Buy), fell below the 50-day moving average yesterday but remains above other key support levels. Shares have soared more than 200% this year as earnings and revenues have soared.
Image Source: StockCharts
Analysts have increased third-quarter earnings estimates for NVDA by 49.11% in the past 60 days. The Q3 Zacks Consensus EPS Estimate is currently $3.34/share, an astounding 475.9% growth rate relative to the same quarter last year. Nvidia isn’t due to report the quarterly results until mid-November.
Image Source: Zacks Investment Research
Meta Platforms (META - Free Report) has also certainly been one of the year’s big winners. META shares held up well through this most recent pullback and appear to be resuming their uptrend; the stock has rewarded investors with a nearly 170% advance in 2023:
Image Source: StockCharts
Meta is benefitting from steady user growth across regions, particularly in the Asia-Pacific region. The company is leveraging artificial intelligence to effectively connect users over Facebook, Instagram, WhatsApp, and Messenger. The Facebook-parent has topped earnings estimates in three of the past four quarters with an average surprise of 18.99%.
Analysts covering META have increased third-quarter earnings estimates by 1.42% in the past 60 days. The Q3 Zacks Consensus EPS Estimate stands at $3.57/share, reflecting 117.7% growth relative to the same quarter last year. Revenues are projected to have risen 20.6% to $33.43 billion during the quarter.
Image Source: Zacks Investment Research
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This more recent information can be a better predictor for future earnings and can give investors a leg up during earnings season. The technique has proven to be quite useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
META is a Zacks Rank #3 (Hold) and boasts a +3.98% Earnings ESP. Another beat may be in the cards when the company reports Q3 results on October 25th. META is ranked favorably by our Zacks Style Scores, with best-possible marks in our Growth and Momentum categories.
Earnings season is beginning to heat up. Make sure you’re taking advantage of all that Zacks has to offer to uncover leading stocks.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.
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Fourth-Quarter Rally Takes Shape: Key Stocks to Watch
After surging on Monday to kick off the week, stocks finished rangebound on Tuesday as investors digested more third-quarter earnings reports. The Q3 earnings season is still in the early innings but is off to a solid start. Earnings remain on pace to exceed expectations, potentially putting an end to the corporate earnings recession. The season heats up this evening with heavyweights Tesla and Netflix reporting after the bell.
Yesterday we learned that retail sales rose 0.7% in September, more than double the 0.3% consensus estimate. The surprise reading underscores the willingness of the American consumer to spend, but also makes the Fed’s job more difficult. Odds of a continued interest rate pause scaled back a bit to 87.5% at the upcoming November 1st meeting.
October – Another Bear Killer?
Last year’s bear market reached a trough in October. More recently, the pullback that began in late July may be coming to an end as stocks have risen broadly off the early October lows. The month of October has normally been a great time to buy, and we now have favorable seasonality on our side.
We are in the midst of the historically bullish fourth quarter (not to mention a pre-election year, the strongest out of all 4 years of the Presidential Cycle). Dating back to 1971, the Nasdaq has rallied in Q4 from its October low into year-end in 46 of 52 years (88.5% of the time), with an average gain of 9.5%. Of the six losses, only one year (2007) was a pre-election year. Needless to say, these are pretty favorable odds.
The Nasdaq’s best year-end rally came in 1998 during the tech run-up, when the index soared 54.5%. Stocks continue to climb a wall of worry in the current landscape as concerns are widespread. Remember, markets tend to surprise the masses.
If markets do in fact rally into year-end, where should we look?
Stocks to Watch
Big tech has dominated returns this year and the trend appears likely to continue in the fourth quarter. Chip giant Nvidia (NVDA - Free Report) came under pressure yesterday after the U.S. Commerce Department tightened its restrictions on the export of artificial intelligence chips and manufacturing equipment to China. This is not the first time the Biden administration has sought to prevent Chinese military and companies from importing advanced semiconductors.
While Nvidia receives between 10-20% of its AI sales from China, overall demand is so strong that the company will likely reroute the chips to other customers. Nvidia doesn’t expect the new trade restrictions to have a meaningful impact on its results in the short-term.
NVDA stock, a Zacks Rank #1 (Strong Buy), fell below the 50-day moving average yesterday but remains above other key support levels. Shares have soared more than 200% this year as earnings and revenues have soared.
Image Source: StockCharts
Analysts have increased third-quarter earnings estimates for NVDA by 49.11% in the past 60 days. The Q3 Zacks Consensus EPS Estimate is currently $3.34/share, an astounding 475.9% growth rate relative to the same quarter last year. Nvidia isn’t due to report the quarterly results until mid-November.
Image Source: Zacks Investment Research
Meta Platforms (META - Free Report) has also certainly been one of the year’s big winners. META shares held up well through this most recent pullback and appear to be resuming their uptrend; the stock has rewarded investors with a nearly 170% advance in 2023:
Image Source: StockCharts
Meta is benefitting from steady user growth across regions, particularly in the Asia-Pacific region. The company is leveraging artificial intelligence to effectively connect users over Facebook, Instagram, WhatsApp, and Messenger. The Facebook-parent has topped earnings estimates in three of the past four quarters with an average surprise of 18.99%.
Analysts covering META have increased third-quarter earnings estimates by 1.42% in the past 60 days. The Q3 Zacks Consensus EPS Estimate stands at $3.57/share, reflecting 117.7% growth relative to the same quarter last year. Revenues are projected to have risen 20.6% to $33.43 billion during the quarter.
Image Source: Zacks Investment Research
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This more recent information can be a better predictor for future earnings and can give investors a leg up during earnings season. The technique has proven to be quite useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
META is a Zacks Rank #3 (Hold) and boasts a +3.98% Earnings ESP. Another beat may be in the cards when the company reports Q3 results on October 25th. META is ranked favorably by our Zacks Style Scores, with best-possible marks in our Growth and Momentum categories.
Earnings season is beginning to heat up. Make sure you’re taking advantage of all that Zacks has to offer to uncover leading stocks.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.