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S&P 500 Hits 4K Milestone on Fabulous Economic Data: 5 Picks

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Wall Street started second-quarter 2021 on a high-note after finishing an impressive first quarter. The new bull market , which was formed in April 2020 after exiting the coronavirus-led shortest bear market, gathered momentum as the market's benchmark S&P 500 Index closed above the technical barrier of 4,000 for the first time on Apr 1. In intraday trading, the broad-market index recorded a fresh all-time high of 4,020.63.

Aggressive nationwide deployment of COVID-19 vaccination, faster-than-expected reopening of the U.S. economy and its strong recovery buoyed by enormous pent-up demand, a fresh round of a massive $1.9 trillion fiscal stimulus, an accommodative Fed  and recently released robust job and manufacturing data significantly boosted market participants' confidence.

Solid Job Data for March

The Department of Labor reported that the U.S. economy added 916,000 nonfarm jobs in March compared with an upwardly revised 468,000 in February. The consensus estimate was 657,000. March's job addition was the highest since August 2020. Workforce participation rate came in at 61.5% compared with the pre-pandemic level of 63.3% in February 2020.

The unemployment rate declined to 6% in March from 6.2% in February. The real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) dropped to 10.7% in March from 11.1% in February.

Notably, the labor market suffered the most among the different segments of the U.S. economy during the pandemic due to lockdowns and various restrictions on business activities. However, this segment is on the recovery path since the beginning of 2021.

Manufacturing Showing No Signs of Decline  

The Institute of Supply Management reported that its manufacturing Purchasing Managers' Index (PMI) for March soared to 64.7% from 60.8% in February, marking the highest reading since December 1983 and the 10th consecutive month of growth. The consensus estimate was 61.3%.

Notably, any reading above 50 means expansion of manufacturing activities. Additionally, the IHS Markit reported that its U.S. manufacturing PMI rose to 59.1% in March from 58.6 in February, marking its second-highest level on record.

Out of the total 18 industries, 17 reported expansion. The sub-index for new orders jumped to 68% from 64.8% in February, reflecting the highest level since January 2004. The sub-index for manufacturing employment came in at 59.6% from 54.4% in February, posting the highest reading since February 2018.

Biden's Fresh Stimulus and Infrastructure Plan

The U.S. economy is witnessing strong recovery since the beginning of 2021 buoyed by $900 billion of the second-round of fiscal stimulus and a fresh round of a massive $1.9 trillion relief package approved by the Biden administration. Furthermore, an estimated $1.5 - $1.8 trillion savings by Americans also supported strong pent-up demand.

Moreover, on Mar 31, President Joe Biden unveiled his $2.3 trillion infrastructure development plan that includes transport, drinking-water, broadband, manufacturing and construction infrastructure developments. Segments like basic materials, industrials and utilities will benefit immensely along with more job creation for the economy.

Volatility Index Plunges

Volatility in U.S. stock markets is fading out gradually. The CBOE VIX, which is derived from the prices of S&P 500 options and represents the market’s expectations of volatility over the coming 30 days, is currently at its lowest level in nearly 14 months.

On Apr 1, VIX ended the day at 17.33. The volatility gauge is currently below both its 200-day and 50-day moving averages of 25.26 and 22.99, respectively. With VIX lying below these psychological thresholds, it means that stock market fluctuations are likely to become less frequent in the near future. All these reflect a significant upside for the equities.

Our Top Picks

We have narrowed down our search to five S&P 500 large-cap (market capital > $25 billion) stocks that have skyrocketed more than 30%  year to date and still have strong upside for the rest of 2021. These stocks have seen robust earnings estimate revision in the last 7 to 30 days.

Moreover, these companies are regular dividend payers providing an important income stream during a market downturn. 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 chart below shows the price performance of our five picks year to date.

 

Exxon Mobil Corp. (XOM - Free Report) explores and produces crude oil and natural gas in the United States, Canada/Other Americas, Europe, Africa, Asia, and Australia/Oceania. It operates through the Upstream, Downstream and Chemical segments.

The Zacks Rank #1 company  has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 5.1% over the last 7 days. It has a current dividend yield of 6.1%. The stock has jumped 39.2% year to date.

Lennar Corp. (LEN - Free Report) operates as a homebuilder primarily under the Lennar brand in the United States. It operates through the Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar Other segments.

The Zacks Rank #1 company  has an expected earnings growth rate of 39.9% for the current year (ending November 2021). The Zacks Consensus Estimate for its current-year earnings has moved up 17.2% over the last 30 days. It has a current dividend yield of 1%. The stock has surged 35.6% year to date.

EOG Resources Inc. (EOG - Free Report) explores, develops, produces and markets crude oil, and natural gas and natural gas liquids in the United States and internationally.

The Zacks Rank #1 company  has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 16.8% over the last 30 days. It has a current dividend yield of 2%. The stock has soared 51% year to date.

D.R. Horton Inc. (DHI - Free Report) operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West United States.

The Zacks Rank #2 company  has an expected earnings growth rate of 42.9% for the current year (ending September 2021). The Zacks Consensus Estimate for its current-year earnings has moved up 0.7% over the last 30 days. It has a current dividend yield of 0.9%. The stock has advanced 32.1% year to date.

Fifth Third Bancorp (FITB - Free Report) operates as a diversified financial services company in the United States. It has 1,134 full-service banking centers in 10 states throughout the Midwestern and Southeastern regions.

The Zacks Rank #2 company  has an expected earnings growth rate of 37.5% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 1.4% over the last 7 days. It has a current dividend yield of 2.8%. The stock has climbed 37.7% year to date.

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