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U.S. Likely to Lead Global Economic Recovery in 2021: 5 Picks

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The U.S. economy suffered its largest yearly decline in 2020 since World War II and for the first time since the financial crisis of 2009 owing fully to the global outbreak of the pandemic. However, recently, several global economic agencies and investment banks projected an astonishing turnaround in 2021 of the U.S. economy that will lead to global economic recovery.

The Oxford Economics said that for the first time since 2005, the United States is likely to lead a powerful global economic recovery in 2021, surpassing China. This is primarily due to the gigantic size of the U.S. economy that is enabling the country to contribute more than China.

The Organization for Economic Cooperation and Development (OECD) said that an impressive rebound of the U.S. economy in 2021 will drive demand for the country's trading partners, including Canada, Mexico, China and the Eurozone countries.

Projections of Impressive Turnaround in 2021

On Feb 1, the Congressional Budget Office (CBO) projected that the U.S. economy will expand 4.6% in 2021 after contracting 3.5% last year. The economy is expected to reach the pre-pandemic level of February 2020 by mid-2021, much earlier than what was projected in July. In January, the International Monetary Fund (IMF) estimated 5.1% U.S. GDP growth in 2021.

On Mar 10, the Wall Street Journal reported that economists on average expect U.S. GDP to expand nearly 6% this year from 4.9% in February and 4.3% in January. Per the Wall Street Journal, this will be the largest U.S. GDP growth since 7.9% in 1983.

On Mar 9, the OECD estimated that the latest fiscal stimulus, along with faster vaccination, could increase U.S. GDP growth to 6.5% in 2021. The Oxford Economics predicted 7% U.S. GDP growth in 2021. Investment Bank Goldman Sachs also forecast 7% U.S. economic growth in 2021.

Robust Pent-Up Demand and New Stimulus

Several research firms, like Bloomberg Economics, Oxford Economics and Goldman Sachs estimated that currently, U.S. citizens have a staggering $1.5 - $1.8 trillion in "excess" or "forced" savings that could climb to $2.4 trillion by mid-2021 as consumers were restrained or restricted to spend on those items that were unavailable during lockdowns.

The U.S. economy is witnessing strong consumer demand. In January, personal expenditure rose 2.4% — the first gain in three months and the biggest monthly increase since June 2020. This was primarily due to $900 billion fiscal stimulus injected by the government in December 2020. The package included one-time cash payments of $600 and a special weekly unemployment benefit of $300.

Meanwhile, President Joe Biden is expected to sign the new $1.9 trillion coronavirus-aid package on Mar 12. Per the bill, eligible U.S. citizens will receive a $1,400 check payment in addition to $1,400 for any dependent. Moreover, the extra amount in unemployment benefits would be increased to $300 a week and the period will be extended up to Sep 6. The fresh stimulus is likely to significantly boost pent-up demand for U.S. consumers.

Nationwide Deployment of COVID-19 Vaccine

The FDA has approved three COVID-19 vaccines so far. The Biden administration is on track to administer at least 100 million doses of COVID-19 vaccine during its first 100 days in office. On Feb 11, President Biden said that by the end of the summer, the United States will have adequate doses of COVID-19 vaccines to administer to more than 300 million citizens.

The speeding up of the vaccination process implies chances of a faster-than-expected reopening of the U.S. economy. Reopening of the economy with the easing of the pandemic will significantly ramp up business activities and employment.

Muted Inflation

Some economists are skeptical about inflationary pressure on the U.S. economy in the near future. However, in January, the core PCE index — Fed's favorite gauge of inflation — rose 1.5%, year over year, which is well below the central bank's 2% target rate. In February, the core (excluding the volatile food and energy items) CPI grew just 1.3% year over year.

This supports Fed Chairman Jerome Powell's repeated confirmation of pursuing ultra-dovish monetary policies for a longer period. On Feb 10, he said benign inflation will enable the central bank to continue with a record-low interest rate of 0-0.25% for a long period. Moreover, the Fed will continue to buy at least $120 billion of bonds per month. Per Powell, in the near term, any spike in inflation will be transitory in nature.

Our Top Picks

We have narrowed down our search to five U.S. corporate behemoths (market capital > $100 billion) as these companies have a well-established business model and powerful brand value. These stocks have skyrocketed more than 20% year to date with more upside potential for 2021 and have witnessed solid earnings estimation revisions in the last 7 to 30 days.

Moreover, all these stocks have strong long-term (3-5) growth prospects and are regular dividend payers providing an important income stream during a market downturn. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

The Goldman Sachs Group Inc. (GS - Free Report) has an expected earnings growth rate of 22% for the current year. The company has a long-term growth rate of 19.2%. The Zacks Consensus Estimate for the current year has improved 2.9% over the last 30 days. This Zacks Rank #2 company has a current dividend yield of 1.51% and the stock has rallied 29.7% year to date.

Deere & Co. (DE - Free Report) has an expected earnings growth rate of 82.5% for the current year (ending October 2021). The company has a long-term growth rate of 18.5%. The Zacks Consensus Estimate for the current year has improved 20.5% over the last 30 days. This Zacks Rank #1 company has a current dividend yield of 0.86% and the stock has jumped 34.2% year to date.

Caterpillar Inc. (CAT - Free Report) has an expected earnings growth rate of 21.8% for the current year. The company has a long-term growth rate of 12%. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 30 days. This Zacks Rank #2 company has a current dividend yield of 1.9% and the stock has surged 21.4% year to date.

Exxon Mobil Corp. (XOM - Free Report) has an expected earnings growth rate of more than 100% for the current year. The company has a long-term growth rate of 7.4%. The Zacks Consensus Estimate for the current year has improved 12.2% over the last 7 days. This Zacks Rank #1 company has a current dividend yield of 5.81% and the stock has soared 49.8% year to date.

Applied Materials Inc. (AMAT - Free Report) has an expected earnings growth rate of 43.4% for the current year (ending October 2021). The company has a long-term growth rate of 13.8%. The Zacks Consensus Estimate for the current year has improved 19.4% over the last 30 days. This Zacks Rank #2 company has a current dividend yield of 0.77% and the stock has climbed 30.5% year to date.

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