Wall Street had an impressive 2020 defying the global outbreak of COVID-19. The stock market rally, which started during the pandemic-ridden April, continued till December, barring some fluctuations in September and October.
The rally is likely to last through January and thereafter primarily due to three factors mentioned below. Consequently, it will be prudent invest in momentum stocks that have surged in the past year and sport a top Zacks Rank.
Momentum Likely to Continue
Momentum investing calls for continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that a stock will only ascend in the short to intermediate term.
Although coronavirus-induced woes are persisting in the United States, causing occasional market fluctuations, the overall movement of Wall Street is likely to remain northbound due to the three main drivers.
First, the FDA authorization of two COVID-19 vaccines in December 2020 means that the economy will reopen and gradually operate at the pre-pandemic level. Since the lockdowns imposed in March, the U.S. economy is operating at a significant sub-optimal level.
Consumers were restrained or restricted by the government to spend on those items that were closed during lockdowns. Reopening of the economy with the easing of the pandemic and strong pent-up demand will significantly boost personal spending, the largest component of the U.S. GDP.
Second, the U.S. Congress has reached an agreement on the next round of fiscal stimulus for pandemic-led devastations. Major components of the $900 billion package include a direct payment of $600 for every adult and child and approximately $300 billion of the small business paycheck protection program.
The second trench of coronavirus-aid package, an ultra-dovish monetary stance maintained by the Fed, record low benchmark interest rate of 0-0.25% and robust pent-up demand will bolster corporate profits.
At present, total earnings of the S&P 500 companies are expected to decline 16.7% on 3.6% lower revenues in the pandemic-affected 2020. However, total earnings of the same set of companies are estimated to jump 22.7% on 7.6% higher revenues in 2021.
Third, an effective control of the U.S. Congress by the Democrats is likely to result in higher fiscal stimulus and quicker implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural developments in the near future.
Several economists and financial experts are concerned that full control of Democrats over the Congress may result in higher corporate taxation and stricter regulations on big technology and communication providers. However, that may not happen immediately.
Consequently, investors have shifted the allotment of funds from safe-haven government bonds to risky equities. On Jan 6, the yield on 10-Year US Treasury Note was up 8.6 basis points to close at 1.049%. The benchmark treasury yield closed above 1% for the first time since March 2020. The yield on 30-year US Treasury Note surged 11.4 basis points to close at 1.832%, its highest in more than eight months.
Our Top Picks
We have narrowed down our search to five momentum stocks that have witnessed robust earnings estimate revisions in the last 7 to 30 days and have strong upside left for 2021. 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 in the past year.
ArcelorMittal ( MT Quick Quote MT - Free Report) is the world’s leading steel and mining company that owns and operates steel manufacturing and mining facilities in Europe, North and South America, Asia, and Africa.
The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 37.7% over the last 30 days. The stock price has jumped 45.4% in the past year.
Ubiquiti Inc. ( UI Quick Quote UI - Free Report) offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. The company has an expected earnings growth rate of 33.3% for the current year (ending June 2021). The Zacks Consensus Estimate for its current-year earnings has risen 25.1% over the last 30 days. The stock price has climbed 43.9% in the past year. Rio Tinto Group ( RIO Quick Quote RIO - Free Report) is an international mining company with interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium, dioxide feedstock, diamonds, talc and zircon.
The company has expected earnings growth of 39.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.9% over the last 30 days. The stock price has soared 40.6% in the past year.
General Motors Co. ( GM Quick Quote GM - Free Report) designs, builds, and sells cars, trucks, crossovers and automobile parts worldwide. It operates through the GM North America, GM International, Cruise and GM Financial segments.
The company has an expected earnings growth rate of 24% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 4.5% over the last 30 days. The stock price has rallied 24% in the past year.
Liberty Broadband Corp. is a cable TV operator that provides video, Internet and voice services to residential and small and medium business customers in the United States. It operates through the Skyhook and Charter segments
The company has an expected earnings growth rate of 48.6% for the current year. The Zacks Consensus Estimate for its earnings next year has improved more than 100% over the last 30 days. The stock price has surged 18% year to date.
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