On Nov 1, Wall Street closed sharply high on Friday following robust non-farm employment data for October. Sidelining market participants’ concerns on the lingering trade conflict with China and global economic slowdown, the U.S. labor market remained firm surprising many economists and industry researchers.
Strong job addition despite several headwinds, record-low unemployment and moderate growth in wage rate faded investors’ fears of a near-term recession. Consequently, all the major stock indexes ---- the Dow, the S&P 500 and Nasdaq Composite ---- railed 1.1%, 1% and 1.1%, respectively. Notably, the S&P 500 and Nasdaq Composite recorded new all-time highs while the Dow is less than 0.2% away from its record high.
Robust Jobs Addition in October
The Department of Labor reported that the non-farm payroll in October came in at 128,000, surpassing the consensus estimate of 88,000. This happened despite the loss of 42,000 jobs due to a strike in General Motors that later ended amicably. Moreover, job additions in September and August were revised upward from 136,000 to 180,000 and from 168,000 to 219,000, respectively.
Moreover, October’s unemployment rate rose slightly to 3.6% from 3.5%, in line with the consensus estimate. Nonetheless, the unemployment rate is still at a 50-year low level. Year to date, monthly job creation averages 167,000, while in 2018, the number was 223,000. Despite the apparent slow pace of growth, total job creation so far in 2019 eliminates the fear that the U.S. economy is heading toward recession.
Top employers in October were restaurants and bars that added 48,000 jobs. This indicates higher discretionary spending by U.S. consumers, which will significantly impact the economy. Additionally, professional and business services, social assistance services, financial services and health care service providers added 22,000, 20,000, 16,000 and 15,000 man power.
The U.S. labor force expanded by 325,000 to 164.4 million last month and labor force participation grew to 63.3%. Real unemployment rate (including discouraged workers and those holding part-time positions for economic reasons) stayed at 7%.
Average hourly wage rate in October grew 0.2% compared with 0% in September. The figure also matched the consensus estimate. Year over year, wage rate increased 3%., faster than overall consumer process, which grew 1.8%.
Implications of Strong Jobs Data
In October, non-farm payroll, consumer confidence and consumer sentiment declined sequentially. However, all three data came in better than expected indicating that the U.S. economy is likely to maintain its current expansion despite the fact that the current expansion which is already historically the longest, spanning 11 years.
Moreover, some improvement in the ISM manufacturing index in October although it is still contracting, solid construction spending in September and improvement in the U.S. housing market due to three consecutive rate cuts by the Fed are the other positives.
Our Top Picks
At this stage, it will be prudent to invest in stocks from those sectors that recruited the most in October. We have narrowed down our search to five such stocks that skyrocketed in 2019 and still have momentum left. Each of these stocks 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 price performance of our five picks year to date.
Chipotle Mexican Grill Inc. (CMG - Free Report) operates quick-casual and fresh Mexican food restaurant chains. It offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The company has an expected earnings growth rate of 51.6% for the current year. The Zacks Consensus Estimate for the current year has improved 2.5% over the last 30 days. The Zacks Rank #2 stock has jumped 78% year to date.
The Boston Beer Company Inc. (SAM - Free Report) produces and sells alcohol beverages primarily in the United States, its flagship beer being Samuel Adams Boston Lager. The company has an expected earnings growth rate of 23.4% for the current year. The Zacks Consensus Estimate for the current year has improved 1.9% over the last 30 days. The Zacks Rank #2 stock has soared 49.4% year to date.
SPS Commerce Inc. (SPSC - Free Report) provides cloud-based supply chain management solutions worldwide. It offers solutions through the SPS Commerce platform, a cloud-based platform that enhances the way retailers, suppliers, grocers, distributors and logistics firms manage and fulfill orders, administer sell-through performance and source new items. The company has an expected earnings growth rate of 25.8% for the current year. The Zacks Consensus Estimate for the current year has improved 5.2% over the last 30 days. The Zacks Rank #1 stock has climbed 29.6% year to date.
S&P Global Inc. (SPGI - Free Report) provides ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. It operates through four segments, namely S&P Global Ratings (Ratings), S&P Global Market Intelligence (Market Intelligence), S&P Global Platts (Platts), and S&P Dow Jones Indices (Indices). The company has an expected earnings growth rate of 10.1% for the current year. The Zacks Consensus Estimate for the current year has improved 1.5% over the last 30 days. The Zacks Rank #2 stock has soared 52.3% year to date.
TransUnion (TRU - Free Report) is one of the leading global providers of risk and information solutions to businesses and consumers. It operates through three segments --- U.S. Information Services (USIS), International, and Consumer Interactive. The company has an expected earnings growth rate of 10.8% for the current year. The Zacks Consensus Estimate for the current year has improved 2.6% over the last 30 days. The Zacks Rank #2 stock has surged 46.9% year to date.
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