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May Nonfarm Payrolls Report Shows Several Positives: 5 Picks
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On Jun 4, the Department of Labor reported the nonfarm payrolls data for May. Jobs addition failed to meet the consensus estimates in back-to-back months. In May, the economy added 559,000 jobs, lagging the consensus estimate of 650,000. April's data was revised upward to 278,000 from 266,000 reported earlier. However, the figure was well below the consensus estimate of more than 1 million.
Yet on Jun 4, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained 0.5%, 0.9% and 1.5%, respectively. The back-to-back monthly job additions that failed to meet market participants' expectation (though some economists are now identifying those as lofty estimations) has removed to some extent investors' concerns of an impending inflation.
A Brief Analysis of May's Job Report
After the latest monthly jobs report, several economists and financial experts are saying that the labor market is witnessing a gradual recovery instead of a V-shaped recovery that the services and goods-producing sectors are showing. This section of economists is now projecting that a full recovery of the U.S. labor market may go beyond 2021.
Irrespective of the fact that the unemployment rate fell to 5.8% in May from 6.1% in April, the economy is still short of about 7.6 million jobs from the pre-pandemic level of February 2020. The weekly jobless claims dropped for the last five reported weeks, yet a significant number of nearly 15.4 million Americans are receiving benefits across all unemployment programs.
Effects on Fed's Next FOMC Meeting
The Fed will conduct its next FOMC meeting on Jun 15-16, which will be keenly monitored by market participants to find out about the central bank's view of an impending inflation. May's jobs data may not be enough to compel the Fed to trigger the inflation button.
The Wall Street Journal has reported that despite record-high job openings, "about 9.3 million people were unemployed and potentially available to work in May." This is visible from two closely watched metrics. The labor force participation rate was pathetic at 61.6%, down from 63.3% in February 2020, and the employment- to-population ratio of 58% was well below the pre-pandemic level of 61.1%.
In order to raise the labor force participation rate, as many as 23 states have decided to terminate $300 weekly unemployment benefits as soon as Jun 12, earlier than the original schedule on Sep 6. The termination of stimulus may contain higher personal expenditure to some extent.
Moreover, producers are now raising wages and providing various incentives and bonus to induce laborers to return to the job market. Wage rate grew 0.5% in May and 2% year over year. Higher labor force participation will reduce wage rate and producers' input costs.
The Fed reiterated that any inflation in 2021 will be transitory and the central bank will pursue its changed policies of giving more importance to unemployment over inflation for some period of time.
Moreover, several Fed members have pointed out that the recent jump in two inflation data — the core PCE price index and the consumer price index — were actually due to last year's extremely low base owing to the pandemic-led global distortions.
Several Positives
In a nutshell, we can expect a systematic recovery of the U.S. economy. Consumer spending, the largest component of the GDP, will remain healthy but not exaggerated, resulting in persistent inflation and the Fed is likely to pursue easy-monetary policies in the near term.
Finally, there is a proposed multi-trillion-dollar development plan for infrastructure, education and health care by the Biden administration, which the President has called more relevant after May's job data. These positives will drive Wall Street's northward journey for the rest of 2021.
Our Top Picks
We have narrowed down our search to five U.S. corporate giants (market capital > $50 billion) as these have well-established business models and globally acclaimed brand values. These stocks have strong growth potential for 2021 and have seen solid earnings estimate revisions within the last 7 to 30 days, indicating a robust business potential for 2021.
Moreover, the stocks have long-term (3-5 years) growth potential well above the market's benchmark S&P 500's 11% growth rate. All these stocks have provided better returns than the S&P 500 in the past month. Finally, each of our picks sports a Zacks Rank #1 (Strong 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 in the past month.
Image Source: Zacks Investment Research
Dow Inc. (DOW - 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 27.7%. The Zacks Consensus Estimate for its current-year earnings has improved 1.7% over the last 7 days.
Target Corp. (TGT - Free Report) has an expected earnings growth rate of 25.6% for the current year (ending January 2022). The company has a long-term growth rate of 13.3%. The Zacks Consensus Estimate for its current-year earnings has improved more than 100% over the last 30 days.
Facebook Inc. has an expected earnings growth rate of 30.6% for the current year. The company has a long-term growth rate of 20.1%. The Zacks Consensus Estimate for the current year has improved 1% over the last 30 days.
Alphabet Inc. (GOOGL - Free Report) has an expected earnings growth rate of 52.6% for the current year. The company has a long-term growth rate of 18.1%. The Zacks Consensus Estimate for the current year has improved 1.8% over the last 7 days.
NVIDIA Corp. (NVDA - Free Report) has an expected earnings growth rate of 58.4% for the current year (ending January 2021). The company has a long-term growth rate of 17.6%. The Zacks Consensus Estimate for the current year has improved 16.8% over the last 30 days.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
Image: Bigstock
May Nonfarm Payrolls Report Shows Several Positives: 5 Picks
On Jun 4, the Department of Labor reported the nonfarm payrolls data for May. Jobs addition failed to meet the consensus estimates in back-to-back months. In May, the economy added 559,000 jobs, lagging the consensus estimate of 650,000. April's data was revised upward to 278,000 from 266,000 reported earlier. However, the figure was well below the consensus estimate of more than 1 million.
Yet on Jun 4, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained 0.5%, 0.9% and 1.5%, respectively. The back-to-back monthly job additions that failed to meet market participants' expectation (though some economists are now identifying those as lofty estimations) has removed to some extent investors' concerns of an impending inflation.
A Brief Analysis of May's Job Report
After the latest monthly jobs report, several economists and financial experts are saying that the labor market is witnessing a gradual recovery instead of a V-shaped recovery that the services and goods-producing sectors are showing. This section of economists is now projecting that a full recovery of the U.S. labor market may go beyond 2021.
Irrespective of the fact that the unemployment rate fell to 5.8% in May from 6.1% in April, the economy is still short of about 7.6 million jobs from the pre-pandemic level of February 2020. The weekly jobless claims dropped for the last five reported weeks, yet a significant number of nearly 15.4 million Americans are receiving benefits across all unemployment programs.
Effects on Fed's Next FOMC Meeting
The Fed will conduct its next FOMC meeting on Jun 15-16, which will be keenly monitored by market participants to find out about the central bank's view of an impending inflation. May's jobs data may not be enough to compel the Fed to trigger the inflation button.
The Wall Street Journal has reported that despite record-high job openings, "about 9.3 million people were unemployed and potentially available to work in May." This is visible from two closely watched metrics. The labor force participation rate was pathetic at 61.6%, down from 63.3% in February 2020, and the employment- to-population ratio of 58% was well below the pre-pandemic level of 61.1%.
In order to raise the labor force participation rate, as many as 23 states have decided to terminate $300 weekly unemployment benefits as soon as Jun 12, earlier than the original schedule on Sep 6. The termination of stimulus may contain higher personal expenditure to some extent.
Moreover, producers are now raising wages and providing various incentives and bonus to induce laborers to return to the job market. Wage rate grew 0.5% in May and 2% year over year. Higher labor force participation will reduce wage rate and producers' input costs.
The Fed reiterated that any inflation in 2021 will be transitory and the central bank will pursue its changed policies of giving more importance to unemployment over inflation for some period of time.
Moreover, several Fed members have pointed out that the recent jump in two inflation data — the core PCE price index and the consumer price index — were actually due to last year's extremely low base owing to the pandemic-led global distortions.
Several Positives
In a nutshell, we can expect a systematic recovery of the U.S. economy. Consumer spending, the largest component of the GDP, will remain healthy but not exaggerated, resulting in persistent inflation and the Fed is likely to pursue easy-monetary policies in the near term.
Finally, there is a proposed multi-trillion-dollar development plan for infrastructure, education and health care by the Biden administration, which the President has called more relevant after May's job data. These positives will drive Wall Street's northward journey for the rest of 2021.
Our Top Picks
We have narrowed down our search to five U.S. corporate giants (market capital > $50 billion) as these have well-established business models and globally acclaimed brand values. These stocks have strong growth potential for 2021 and have seen solid earnings estimate revisions within the last 7 to 30 days, indicating a robust business potential for 2021.
Moreover, the stocks have long-term (3-5 years) growth potential well above the market's benchmark S&P 500's 11% growth rate. All these stocks have provided better returns than the S&P 500 in the past month. Finally, each of our picks sports a Zacks Rank #1 (Strong 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 in the past month.
Dow Inc. (DOW - 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 27.7%. The Zacks Consensus Estimate for its current-year earnings has improved 1.7% over the last 7 days.
Target Corp. (TGT - Free Report) has an expected earnings growth rate of 25.6% for the current year (ending January 2022). The company has a long-term growth rate of 13.3%. The Zacks Consensus Estimate for its current-year earnings has improved more than 100% over the last 30 days.
Facebook Inc. has an expected earnings growth rate of 30.6% for the current year. The company has a long-term growth rate of 20.1%. The Zacks Consensus Estimate for the current year has improved 1% over the last 30 days.
Alphabet Inc. (GOOGL - Free Report) has an expected earnings growth rate of 52.6% for the current year. The company has a long-term growth rate of 18.1%. The Zacks Consensus Estimate for the current year has improved 1.8% over the last 7 days.
NVIDIA Corp. (NVDA - Free Report) has an expected earnings growth rate of 58.4% for the current year (ending January 2021). The company has a long-term growth rate of 17.6%. The Zacks Consensus Estimate for the current year has improved 16.8% over the last 30 days.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>