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Wall Street Suffers Back-to-Back Monthly Decline: What Next?
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After a five month-long astonishing rally, Wall Street suffered back-to-back monthly declines. All the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Compsite — tumbled 2.3%, 3.9% and 5.2%, respectively, in September and 4.6%, 2.8% and 2.3%, in October. This happened for the first time after March.
Meanwhile, economists and financial experts are busy discussing how the stock markets will behave in the final two months of the coronavirus-stricken 2020. Let's discuss briefly.
Wall Street Tumbles Despite Solid Economic Data
Fundamentals of the U.S. economy are stable in spite of the eight month-long coronavirus-induced devastations. In fact, the devastation is not as severe as was expected in March. On Oct 29, the Department of Commerce reported that the GDP jumped a record high at an annualized pace of 33.1% after plunging 31.4% in the second quarter. The figure was also above the Zacks Consensus Estimate of 31.3%.
The weekly jobless claims fell below 1 million for nine consecutive weeks although the absolute figure is still at a very high level. Housing market, auto sales and retail sales also remained at a better-than-expected level in September and October. U.S. manufacturing is showing a turnaround in last five months and consumer confidence remained high.
Despite this, the downward trend in Wall Street may be due to the fact that economic data are historical facts while stock prices depend on market participants expectations about the future. The resurgence of coronavirus in the United States and the second round of partial lockdowns imposed in a few major Eurozone economies significantly dented investors' sentiment regarding global economic recovery.
The situation is just the opposite of the April-May period when markets surged despite weak economic data on expectations that stabilization of COVID-19 infections will result in the reopening of a large part of the U.S. economy.
Moreover, a tighter-than-expected U.S. presidential election scheduled on Nov 3 and the inability of the U.S. Congress to reach a deal on the size and the scope of a fresh fiscal stimulus dampened investors' sentiments.
Although election-related volatility will be erased this week, the outcome of the election in the White House as well as the House of Representatives and Senate will determine the possibility of a new dose of coronavirus-aid package.
Three Positive Catalysts
First, several economic data of September indicated that the U.S. economy is growing despite the lack of a fresh stimulus. Consumer spending — the largest driver of the U.S. GDP — rose 1.4% in September after gaining 1% in August. Personal income rose 0.9% in September after dropping 2.7% in August. Upcoming holiday sales are likely to boost the overall economy.
Second, the third-quarter earnings season has started on a positive note although overall earnings are likely to remain negative. As of Oct 30, total S&P 500 earnings are expected to decline 10.5% on 2.8% lower revenues. This would mean an improvement over an earnings decline of 22% year over year on 2.9% lower revenues, as projected before the reporting cycle.
This also implies a marked improvement over second-quarter earnings that plunged 32.3% on 9.2% lower revenues. Notably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. More importantly, earnings expectations for the fourth quarter are gradually improving since July.
Third, the market is no longer overvalued. All three major stock indexes recorded their recent trough on Mar 23. Since then, the indexes had a bull run up to Sep 2 barring some minor fluctuations. On Sep 2, the S&P and the Nasdaq Composite recorded their all-time highs while the Dow reached the highest level since Feb 12, when it hit the latest all-time high.
From Sep 2, the S&P 500, the Nasdaq Composite and the Dow plummeted 8.9%, 9.6% and 9.1%, respectively, till Oct 30. The technology sector, the largest driver of Wall Street's five month-long rally during the pandemic, plunged 13.2% in the same period.
The U.S. stock markets are the best destination for investors. Between the post-recession era and the outbreak of the novel coronavirus, overall returns of U.S. stocks were nearly four times higher than the rest of the world. After successfully reviving from the Great Recession, Wall Street also recovered overwhelmingly from the trade-related assault of 2018. Wall Street is poised to keep the flag high amid coronavirus-led devastations too.
How to Pick the Right Stocks
At this stage, it will be prudent to invest in large-cap (market capital >$10 billion) growth/momentum stocks instead of investing in reopening or cyclical stocks for near-term gains. Select stocks with a Growth Score or Momentum Score of A and strong upside left. These stocks must carry 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 the above-mentioned eight stocks year to date.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Wall Street Suffers Back-to-Back Monthly Decline: What Next?
After a five month-long astonishing rally, Wall Street suffered back-to-back monthly declines. All the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Compsite — tumbled 2.3%, 3.9% and 5.2%, respectively, in September and 4.6%, 2.8% and 2.3%, in October. This happened for the first time after March.
Meanwhile, economists and financial experts are busy discussing how the stock markets will behave in the final two months of the coronavirus-stricken 2020. Let's discuss briefly.
Wall Street Tumbles Despite Solid Economic Data
Fundamentals of the U.S. economy are stable in spite of the eight month-long coronavirus-induced devastations. In fact, the devastation is not as severe as was expected in March. On Oct 29, the Department of Commerce reported that the GDP jumped a record high at an annualized pace of 33.1% after plunging 31.4% in the second quarter. The figure was also above the Zacks Consensus Estimate of 31.3%.
The weekly jobless claims fell below 1 million for nine consecutive weeks although the absolute figure is still at a very high level. Housing market, auto sales and retail sales also remained at a better-than-expected level in September and October. U.S. manufacturing is showing a turnaround in last five months and consumer confidence remained high.
Despite this, the downward trend in Wall Street may be due to the fact that economic data are historical facts while stock prices depend on market participants expectations about the future. The resurgence of coronavirus in the United States and the second round of partial lockdowns imposed in a few major Eurozone economies significantly dented investors' sentiment regarding global economic recovery.
The situation is just the opposite of the April-May period when markets surged despite weak economic data on expectations that stabilization of COVID-19 infections will result in the reopening of a large part of the U.S. economy.
Moreover, a tighter-than-expected U.S. presidential election scheduled on Nov 3 and the inability of the U.S. Congress to reach a deal on the size and the scope of a fresh fiscal stimulus dampened investors' sentiments.
Although election-related volatility will be erased this week, the outcome of the election in the White House as well as the House of Representatives and Senate will determine the possibility of a new dose of coronavirus-aid package.
Three Positive Catalysts
First, several economic data of September indicated that the U.S. economy is growing despite the lack of a fresh stimulus. Consumer spending — the largest driver of the U.S. GDP — rose 1.4% in September after gaining 1% in August. Personal income rose 0.9% in September after dropping 2.7% in August. Upcoming holiday sales are likely to boost the overall economy.
Second, the third-quarter earnings season has started on a positive note although overall earnings are likely to remain negative. As of Oct 30, total S&P 500 earnings are expected to decline 10.5% on 2.8% lower revenues. This would mean an improvement over an earnings decline of 22% year over year on 2.9% lower revenues, as projected before the reporting cycle.
This also implies a marked improvement over second-quarter earnings that plunged 32.3% on 9.2% lower revenues. Notably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. More importantly, earnings expectations for the fourth quarter are gradually improving since July.
Third, the market is no longer overvalued. All three major stock indexes recorded their recent trough on Mar 23. Since then, the indexes had a bull run up to Sep 2 barring some minor fluctuations. On Sep 2, the S&P and the Nasdaq Composite recorded their all-time highs while the Dow reached the highest level since Feb 12, when it hit the latest all-time high.
From Sep 2, the S&P 500, the Nasdaq Composite and the Dow plummeted 8.9%, 9.6% and 9.1%, respectively, till Oct 30. The technology sector, the largest driver of Wall Street's five month-long rally during the pandemic, plunged 13.2% in the same period.
The U.S. stock markets are the best destination for investors. Between the post-recession era and the outbreak of the novel coronavirus, overall returns of U.S. stocks were nearly four times higher than the rest of the world. After successfully reviving from the Great Recession, Wall Street also recovered overwhelmingly from the trade-related assault of 2018. Wall Street is poised to keep the flag high amid coronavirus-led devastations too.
How to Pick the Right Stocks
At this stage, it will be prudent to invest in large-cap (market capital >$10 billion) growth/momentum stocks instead of investing in reopening or cyclical stocks for near-term gains. Select stocks with a Growth Score or Momentum Score of A and strong upside left. These stocks must carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
A few stocks that fulfill these criteria include: Zoom Video Communications Inc. (ZM - Free Report) , FedEx Corp. (FDX - Free Report) , Whirlpool Corp. (WHR - Free Report) , The Boston Beer Co. Inc. (SAM - Free Report) , Laboratory Corporation of America Holdings (LH - Free Report) , RPM International Inc. (RPM - Free Report) , Brown & Brown Inc. (BRO - Free Report) and DaVita Inc. (DVA - Free Report) .
The chart below shows the price performance of the above-mentioned eight stocks year to date.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>