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Solid U.S. Economic Fundamentals to Drive Wall Street in Q4
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Wall Street ended the first trading week of October on a positive note after a devastating September. The stock major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were up 1.2%, 0.8% and 0.1%, respectively.
However, a section of market participants has raised questions about U.S. economic recovery after disappointing job addition in September, marking the lowest monthly nonfarm payrolls so far this year. Nevertheless, last month’s job data was a mixed lone as some positives were also there.
Mixed Job Reports for September
On Oct 8, the Department of Labor reported that the U.S. economy added 194,000 jobs in September, well below the consensus estimate of 476,000. However, job additions in August were revised upward by 131,000 to reach 366,000 and July's payrolls were revised upward by 38,000 to 1.091 million.
The unemployment rate dropped sharply to 4.8% in September from 5.2% in August. The consensus estimate was 5.1%. The drop in the unemployment rate was partially due to a marginal but unexpected decline in labor for participation rate to 61.6% in September from 61.7% in August.
The average hourly wage rate rose to 0.6% in September from 0.4% in the previous month. Year over year, the wage rate increased 4.6% compared with 4% in August, marking its highest monthly gain since February.
A higher wage rate will increase personal income and therefore may induce consumers to spend more. On the other hand, the economy is likely to face higher inflationary pressures going forward.
Catalysts for Fourth Quarter
First, as new cases of the highly-infectious Delta variant of coronavirus subdued last month, the reopening industries of the U.S. economy are likely to benefit more. Nationwide vaccination drives also resulted in the faster-than-expected reopening. Massive pent-up demand and holiday season sales in the fourth quarter are likely to boost the U.S. economy.
Second, the Institute of Supply Management reported that both manufacturing and services PMIs showed exceptional results in September. Robust data for both manufacturing and services sectors will eventually lead to strong economic growth. Notably, the services sector accounts for 70% of the U.S. GDP while the manufacturing sector commands around 12% of economic activities.
Third, durable goods orders surged 1.8% in August. Moreover, new orders for core capital goods (non-defense capital goods excluding aircraft) rose 0.6% in August. Year over year, new orders for core capital goods jumped 16.4%. This metric is a closely watched proxy for a business investment plan. Shipments of core capital goods rose 0.7% in August. This metric is used to calculate equipment spending in GDP measurement.
Fourth, in addition to strong business spending, consumer spending rebounded in August with a gain of 0.8% after declining 0.1% in July. Consumer spending is likely to remain elevated as we are entering the holiday sales season. Holiday retail sales are likely to climb this year as projected by various major market researchers like Deloitte, Mastercard SpendingPulse, Bain and KPMG. Notably, consumer spending accounts for nearly 70% of U.S. GDP.
Finally, a major driver of stock markets in October and November could be the third-quarter 2021 earnings results. As of Oct 8, total third-quarter earnings for the S&P 500 Index are expected to be up 26.1% from the same period last year on 14% higher revenues. Moreover, total earnings of the S&P 500 Index are projected to climb 42.7% on 13.5% higher revenues in 2021 and increase 10.3% on 5.1% higher revenues in 2022.
Stocks in Focus
At this stage, several stocks look attractive for future growth. However, picking them on the following three criteria will make the task easy.
First, select U.S. corporate giants (market cap > $100 billion) with strong growth potential for the rest of 2021. Second, these stocks have seen positive earnings estimate revisions within the last 90 days for the next one year. Third, these stocks have robust upside left as reflected by a solid long-term (3-5 years) growth rate.
Image: Bigstock
Solid U.S. Economic Fundamentals to Drive Wall Street in Q4
Wall Street ended the first trading week of October on a positive note after a devastating September. The stock major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were up 1.2%, 0.8% and 0.1%, respectively.
However, a section of market participants has raised questions about U.S. economic recovery after disappointing job addition in September, marking the lowest monthly nonfarm payrolls so far this year. Nevertheless, last month’s job data was a mixed lone as some positives were also there.
Mixed Job Reports for September
On Oct 8, the Department of Labor reported that the U.S. economy added 194,000 jobs in September, well below the consensus estimate of 476,000. However, job additions in August were revised upward by 131,000 to reach 366,000 and July's payrolls were revised upward by 38,000 to 1.091 million.
The unemployment rate dropped sharply to 4.8% in September from 5.2% in August. The consensus estimate was 5.1%. The drop in the unemployment rate was partially due to a marginal but unexpected decline in labor for participation rate to 61.6% in September from 61.7% in August.
The average hourly wage rate rose to 0.6% in September from 0.4% in the previous month. Year over year, the wage rate increased 4.6% compared with 4% in August, marking its highest monthly gain since February.
A higher wage rate will increase personal income and therefore may induce consumers to spend more. On the other hand, the economy is likely to face higher inflationary pressures going forward.
Catalysts for Fourth Quarter
First, as new cases of the highly-infectious Delta variant of coronavirus subdued last month, the reopening industries of the U.S. economy are likely to benefit more. Nationwide vaccination drives also resulted in the faster-than-expected reopening. Massive pent-up demand and holiday season sales in the fourth quarter are likely to boost the U.S. economy.
Second, the Institute of Supply Management reported that both manufacturing and services PMIs showed exceptional results in September. Robust data for both manufacturing and services sectors will eventually lead to strong economic growth. Notably, the services sector accounts for 70% of the U.S. GDP while the manufacturing sector commands around 12% of economic activities.
Third, durable goods orders surged 1.8% in August. Moreover, new orders for core capital goods (non-defense capital goods excluding aircraft) rose 0.6% in August. Year over year, new orders for core capital goods jumped 16.4%. This metric is a closely watched proxy for a business investment plan. Shipments of core capital goods rose 0.7% in August. This metric is used to calculate equipment spending in GDP measurement.
Fourth, in addition to strong business spending, consumer spending rebounded in August with a gain of 0.8% after declining 0.1% in July. Consumer spending is likely to remain elevated as we are entering the holiday sales season. Holiday retail sales are likely to climb this year as projected by various major market researchers like Deloitte, Mastercard SpendingPulse, Bain and KPMG. Notably, consumer spending accounts for nearly 70% of U.S. GDP.
Finally, a major driver of stock markets in October and November could be the third-quarter 2021 earnings results. As of Oct 8, total third-quarter earnings for the S&P 500 Index are expected to be up 26.1% from the same period last year on 14% higher revenues. Moreover, total earnings of the S&P 500 Index are projected to climb 42.7% on 13.5% higher revenues in 2021 and increase 10.3% on 5.1% higher revenues in 2022.
Stocks in Focus
At this stage, several stocks look attractive for future growth. However, picking them on the following three criteria will make the task easy.
First, select U.S. corporate giants (market cap > $100 billion) with strong growth potential for the rest of 2021. Second, these stocks have seen positive earnings estimate revisions within the last 90 days for the next one year. Third, these stocks have robust upside left as reflected by a solid long-term (3-5 years) growth rate.
Eight stocks have fulfilled our selection criteria. These are: salesforce.com.inc. (CRM - Free Report) , Deere & Co. (DE - Free Report) , Walmart Inc. (WMT - Free Report) , Tesla Inc. (TSLA - Free Report) , Square Inc. (SQ - Free Report) , Costco Wholesale Corp. (COST - Free Report) , Danaher Corp. (DHR - Free Report) and Microsoft Corp. (MSFT - Free Report) .