On Jul 27, Wall Street ended its five-day winning streak as all three major stock indexes retreated from their respective all-time and closing highs recorded on the previous day. Investors were shaky ahead of the earnings results of the three big techs and other corporate giants after the closing bell.
However, on a peak earnings day, market participants perhaps failed to pay attention to an important and interesting economic data. The Conference Board's U.S. consumer confidence index hit the pandemic era high in July in contrast to the consensus estimate of a drop this month.
Consumer Confidence Hits 16-Month High in July
On Jul 27, the Conference Board reported that the consumer confidence index increased to 129.1 in the month, marking its highest level since February 2020 and surpassed the consensus estimate of 125. Last month's data was also revised upward from 127.3 to 128.9. U.S. consumer confidence has increased for six months in a row.
The Present Situation Index, which gauges consumers’ views on current market conditions, rose to 160.3 in July from 159.6 in June. The Expectations Index, which is a measure of consumers’ short-term (next six months) outlook for income, business and labor market conditions, fell marginally to 108.4 in July from 180.5 in June.
The consumer confidence index reached the post-pandemic high in June. However, market participants were expecting a drop this month due to mounting inflationary pressure and growing concerns about the spread of the highly infectious Delta variant of the coronavirus.
Lynn Franco, senior director of economic indicators at the board said, "Consumers' appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers' optimism about the short-term outlook didn't waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve."
Inflation and Infection Unlikely to Derail U.S. Economy
Per the Conference Board report, short-term expectations of inflation declined in July although it still remains a concern. Franco said, "Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months."
On Jul 26,
The Wall Street Journal reported that inflation expectation (what businesses, consumers, workers and investors expect inflation to be over the next one to 10 years) eased in the past month after a sharp acceleration from October 2020 to May 2021.
Consumer spending, the major driver of the U.S. economy, is expected to remain firm buoyed by around $2.5 trillion of personal savings. The strong pent-up demand likely supports consumer spending in the second half of 2021.
Moreover, in its latest report released on Jul 27, the IMF said economic growth of different countries will depend to a large extent upon how they are rolling out the COVID-19 vaccinations. The economic outlook is improving for advanced economies, where nearly 40% of the population has been vaccinated.
In the United States, nearly 50% of the population has already been vaccinated. The government is deploying COVID-19 vaccines nationwide on a priority basis. In fact, the resurgence of the Delta string is likely to compel Americans to get vaccinated urgently.
The IMF has raised the U.S. GDP growth projection for 2021 to 7% from 6.4% in April. The agency also estimated that the current inflationary pressure in developed economies will subside in 2022 once the pandemic-related supply disruptions ease. This is in line with the Fed's view that the current inflation is transitory.
Our Top Picks
We have narrowed down our search to five consumer discretionary stocks that have surged more than 20% year to date and still have strong upside potential for the rest of 2021.
All these stocks have witnessed robust earnings estimate revisions in the last 7 days, indicating that the market is currently expecting these companies to do good business in 2021. 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.
Image Source: Zacks Investment Research Skechers U.S.A. Inc. ( SKX Quick Quote SKX - Free Report) designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers brand worldwide. It operates through three segments: Domestic Wholesale, International Wholesale, and Direct-to-Consumer.
This Zacks Rank #1 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 23% over the last 7 days. The stock price has jumped 46.9% year to date.
Pool Corp. ( POOL Quick Quote POOL - Free Report) is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. In addition, it is a leading regional wholesale distributor of irrigation and landscape products.
This Zacks Rank #1 company has an expected earnings growth rate of 59.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the last 7 days. The stock price has advanced 26.7% 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.
This Zacks Rank #1 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 16.1% over the last 7 days. The stock price has soared 105.4% year to date.
Deckers Outdoor Corp. ( DECK Quick Quote DECK - Free Report) is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports, and other lifestyle-related activities.
This Zacks Rank #2 company has an expected earnings growth rate of 11.6% for the current year (ending March 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 7 days. The stock price has climbed 38.8% year to date.
Whirlpool Corp. ( WHR Quick Quote WHR - Free Report) manufactures and markets home appliances and related products. It operates through four segments: North America;, Europe, Middle East and Africa, Latin America, and Asia.
This Zacks Rank #2 company has an expected earnings growth rate of 41.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 7 days. The stock price has surged 21.6% year to date.