A common adage of Wall Street is "sell in May and go away." However, this year may be a good time for investment in equities. A faster-than-expected recovery of the U.S. economy buoyed by nationwide COVID-19 vaccinations, unprecedented fiscal stimulus and an extremely accommodative Fed will likely fuel a stock market rally.
Notably, in April, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained 2.4%, 5.6% and 7%, respectively. Let's discuss the catalysts for May in brief.
Strong Economic Data
The Department of Commerce reported that the U.S. economy jumped 6.4% in first-quarter 2021 after accelerating 4.3% in fourth-quarter 2020. Consumer spending, which constituted more than 68% of the economy skyrocketed to 10.7%. Consumer spending is likely to remain high as the personal savings rate soared to 21% in first-quarter 2021 from 13% in the previous quarter.
Notably, expenditure on goods increased 23.6% and more importantly spending of services, which was suffering till the last quarter of 2020 due to pandemic-related restrictions, grew 4.6%. The core (excluding volatile items) PCE price index — Fed's favorite inflation gauge — rose 0.4% in March and 1.8% year over year, well below Fed's 2% target rate.
Robust Consumer and Business Optimism
The Conference Board reported that Consumer Confidence in April jumped to a 14-month high of 121.7 from the downwardly revised 109 in March. The sub-index for Expectations for the next six months rose to 109.8 in April from 108.3 in the prior month.
The University of Michigan reported that consumer sentiment climbed to 88.3% in the final reading of April from 86.5% in the preliminary reading, the highest since February 2020. The expectations sub-index rose to 82.7% from 79.7% in the preliminary reading, the highest since February 2020.
Meanwhile, the ramp-up of nationwide COVID-19 vaccination by the government resulted in the removal of stringent restrictions on business by state and local governments. This in turn raised the possibility of faster-than-expected economic recovery, lifting the confidence of U.S. businesses.
Solid Recovery of Labor Market
In the last three reported data, the weekly jobless claims came in at below 600,000. These are at the low end of the pandemic-period weekly employment benefit. In March, the U.S. economy added 916,000 nonfarm jobs. Economists, on average, are expecting more than 1 million job additions in April.
Impressive First-Quarter Earnings Results So Far
As of Apr 30, 302 S&P 500 companies have reported results. Total earnings of these companies are up 51.1% year over year on 8.3% higher revenues, with 86.1% of companies having surpassed EPS estimates and 77.8% beating on revenues.
For the first quarter as a whole, total earnings of the S&P 500 companies are expected to be up 42.6% from the same period last year on 6.8% higher revenues. These estimates compare favorably with the 20.4% jump in earnings on 5.6% higher revenues projected at the beginning of the reporting cycle.
Our Top Picks
We have narrowed down our search to six stocks that have popped more than 25% year to date and have a strong upside left for the rest of 2021. These stocks have witnessed robust earnings estimate revisions in the last 7 days highlighting solid business prospects. 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 six picks year to date.
Louisiana-Pacific Corp. ( LPX Quick Quote LPX - Free Report) manufactures and markets building products primarily for use in new home construction, repair and remodeling, and outdoor structure markets. It operates through four segments: Siding, Oriented Strand Board, Engineered Wood Products, and South America.
The 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 improved 20.8% over the last 7 days. The stock price has soared 77.2% year to date.
Continental Resources Inc. ( CLR Quick Quote CLR - Free Report) explores, develops, and produces crude oil and natural gas primarily in the north, south, and east regions of the United States. It sells its crude oil and natural gas production to energy marketing companies, crude oil refining companies, and natural gas gathering and processing companies.
The 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 improved 3.4% over the last 7 days. The stock price has jumped 67.1% year to date.
( Crocs Inc. CROX Quick Quote CROX - Free Report) designs, develops, manufactures, markets and distributes casual lifestyle footwear and accessories for men, women and children worldwide. It offers various footwear products, including clogs, sandals, flips and slides, shoes, and boots under the Crocs brand name.
The company has an expected earnings growth rate of 76.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 44.9% over the last 7 days. The stock price has climbed 59.7% year to date.
Boyd Gaming Corp. ( BYD Quick Quote BYD - Free Report) operates as a multi-jurisdictional gaming company. It operates through three segments: Las Vegas Locals, Downtown Las Vegas, and Midwest & South.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 52.1% over the last 7 days. The stock price has appreciated 54.1% year to date.
Alphabet Inc. ( GOOGL Quick Quote GOOGL - Free Report) has been showing increased appetite in the Home Assistant space. It has been growing rapidly in this fast-growing highly-competitive cloud market. The Google search engine is the dominant player in both laptop and mobile platforms. Moreover, Alphabet is strongly positioned with the YouTube platform for online and mobile video.
The company has an expected earnings growth rate of 45% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 21.8% over the last 7 days. The stock price has surged 34.3% year to date.
Landstar System Inc. ( LSTR Quick Quote LSTR - Free Report) provides integrated truck transportation management solutions in the United States, Canada, Mexico, and internationally. It operates through two segments, Transportation Logistics, and Insurance.
The company has an expected earnings growth rate of 60.2% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 12.3% over the last 7 days. The stock price has advanced 27.9% year to date.
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