The Wall Street rally which commenced on Mar 24 has not yet shown any sign of retreat. Many economists and financial researchers have called this a "bear-market rally." What is remarkable here is that the rally is crossing one hurdle after another such as disappointing economic data and deteriorating corporate earnings.
The latest hindrance in the path of the rally came in the form of April’s skyrocketing payroll decline, which it again managed to override last week.
An Impressive Week for Wall Street
On May 8, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained 1.9%, 1.6% and 1.5%, respectively, despite the largest drop in monthly payroll since the time of the Great Depression.
For the week ended May 8, the Dow, the S&P 500, the Nasdaq Composite and the Russell 200 rallied 2.6%, 3.5%, 6% and 5.5%, respectively. The Dow closed the week at 24,331.32, marking the blue-chip indexes first closing above 24,000 since Apr 30. Market's benchmark — the S&P 500 — closed at 2,929.80 on May 8, registering its first closing above 2,900 since Apr 30.
The Nasdaq Composite ended the week at 9,121.32, reflecting its first closing above 9,000 since Mar 4. Meanwhile, the tech-laden index reentered the green zone on May 7 and has gained 1.7% so far this year. The index's fabulous weekly rally was primarily attributed to the strong performance of several tech behemoths.
Aside from these three large-cap specific indexes, the small-cap centric Russell 2000 Index also surged 3.6% in the past week. The index finished the week at 1,329.64, marking its first closing above 1,300 since Apr 30.
Indication is Clear - Market's Worst is Over
Market's worst is behind us as negative estimates are already factored in valuations. The Labor Department's Data revealed that U.S. non-farm payroll declined by a massive 20.5 million in April and unemployment rate skyrocketed to 14.7%. Both data were the weakest since the World War II.
Meanwhile, the consensus estimate for April's job losses was 20.21 million, mostly in line with the actual data while the consensus estimate for unemployment rate was much higher at 15.8%. Moreover, out of 20.5 million job losses, a large chunk of 18.1 million were furloughed, meaning the current unemployment scenario is temporary in nature. These jobs should return as the economy is reopening in phases.
Leisure and hospitality, education and health services, professional and business services and retail trade are the major sectors that witnessed the bulk of job losses. Notably, these are the sectors that suffered the most due to lockdown imposed by the government.
Additionally, gradual reduction of new COVID-19 cases and an unprecedented $8 trillion of fiscal and monetary stimulus injected by the government and the Fed will instill confidence in market participants.
Our Top Picks
At this stage, investment in stocks that popped in the past week with a favorable Zacks Rank will be prudent. We have narrowed down our search to five such stocks with strong growth potential, upward earnings estimates revision in the past seven days. These stocks also sport 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 perfrmance of our five picks in the past week.
Wayfair Inc. (W - Free Report) is one of the world's leading online sellers of home goods products, consisting of furniture and home decor. The company has an expected earnings growth rate of 34.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 39.3% over the past seven days. The stock has jumped 53.5% in the past week.
Chegg Inc. (CHGG - Free Report) operates a direct-to-student learning platform from high school to college with tools designed to help them pass their class and save money on required material. The company has an expected earnings growth rate of 33% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 11% over the past seven days. The stock has climbed 49% in the past week.
Moderna Inc. (MRNA - Free Report) develops therapeutics and vaccines based on messenger RNA for the treatment of infectious diseases, immuno-oncology, rare diseases, and cardiovascular diseases. It is a leading player developing vaccine for COVID-19. The company has an expected earnings growth rate of 7.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 2.7% over the past seven days. The stock has soared 23.6% in the past week.
Quidel Corp. (QDEL - Free Report) develops, manufactures, and markets diagnostic testing solutions for applications in infectious diseases, cardiology, thyroid, women's and general health, eye health, gastrointestinal diseases and toxicology worldwide. The company has an expected earnings growth rate of 20.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 16.7% over the past seven days. The stock has surged 13.9% in the past week.
The Clorox Co. (CLX - Free Report) manufactures and markets consumer and professional products worldwide. It operates through four segments: Cleaning, Household, Lifestyle and International.. The company has an expected earnings growth rate of 9% for the current year (ending June 2020). The Zacks Consensus Estimate for current-year earnings has improved by 1% over the past seven days. The stock has advanced 5.9% in the past week.
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