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4 Factors to Add Fuel to the Bull Market in 2021: 5 Top Picks
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The bull market of Wall Street, which commenced in April 2020 after exiting the coronavirus-induced bear market, continues in 2021, barring some fluctuations. Major indexes for both the large-cap, mid-cap and small-cap segments are currently hovering around their all-time highs.
Meanwhile, a section of economists and financial experts are concerned that the current market valuation may be susceptible to soaring yield on Treasury Notes and inflationary expectations. However, we believe that four factors will support Wall Street's northbound journey in the days ahead. Let's take a look at those factors.
Impressive Corporate Profits and GDP
The fourth-quarter 2020 earnings results have been positive so far after three consecutive quarters of negative growth. Overall, the fourth-quarter earnings for the S&P 500 Index are projected to be up 2.8% year over year on 2.8% higher revenues. The initial projection was a decline of 7.8% in earnings on 0.3% higher revenues. More importantly, the 2021 earnings for the S&P 500 Index are estimated to up 27.6% on 8.8% higher revenues.
Strong earnings results of the last quarter of 2020 and an impressive projection for 2021 indicates that the U.S. economy is coming out of the coronavirus-induced uncertainties at faster-than-expected rate.
On Feb 1, the Congressional Budget Office projected that the U.S. economy will expand 4.6% in 2021 after contracting 3.5% last year. The economy is expected to reach the pre-pandemic level of February 2020 by mid-2021, primarily backed by unprecedented fiscal and monetary stimulus provided in 2020.
According to the business and academic economists surveyed in February by the Wall Street Journal, U.S. GDP is estimated to expand nearly 4.9% this year, an improvement from their 4.3% forecast in January. On Feb 17, the Atlanta Fed projected that the first-quarter 2021 GDP will surge 9.5%.
Unprecedented Fiscal Stimulus
In March 2020, the previous Trump administration injected $2.2 trillion stimulus that included weekly unemployment benefit and small-business paycheck protection program. In December 2020, the U.S. Congress approved another $900 billion coronavuris-aid package.
Moreover, the Democrats are moving forward with President Joe Biden’s proposed $1.9 trillion COVID-19 relief package. On Feb 12, the Ways and Means Committee of the House approved $940 billion of Biden's proposal. This includes $1,400 payments for millions of U.S. citizens. On Feb 10, the Education and Labor Committee approved the hike in the federal minimum wage from $7.25 to $15 per hour over five years.
The benefits of fiscal stimulus is evident as retail sales and core (excluding auto) retail sales jumped 5.3% and 5.9%, respectively in January after dropping 1% in December. The $900 stimulus package that includes direct payments of up to $600 per adult and enhanced jobless benefits of $300 per week was the primary reason behind the retail sales' jump.
Fed to Pursue Easy Monetary Policies
On Feb 10, the Fed chairman Jerome Powell said at the Economic Club of New York that the central bank will patiently pursue accommodative monetary policies as the labor market has a long way to go to achieve a near-full employment level that prevailed prior to the onset of the global coronavirus outbreak.
Amid the pandemic, Fed adopted a game-changing strategy of giving unemployment more importance over inflation. Moreover, benign inflation will enable the central bank to continue with a record-low interest rate of 0-0.25% for a longer period.
Moreover, the Fed will continue to buy at least $120 billion of bonds ($80 billion of Treasury bonds and $40 billion of agency mortgage-backed securities) per month “until substantial further progress has been made toward the central bank's maximum employment and price stability goals.”
Massive Savings and Strong Pent-Up Demand
This week, Goldman Sachs reported that currently U.S. citizens have $1.5 trillion in "excess" or "forced" savings that could climb to $2.4 trillion by mid-2021. This massive savings was due to concerns over pandemic-led economic uncertainties. Consumers were restrained or restricted by the government to spend on those items that were closed during lockdowns.
On Feb 11, President Biden said that by the end of the summer, the U.S. will have adequate doses of COVID-19 vaccines to administer to more than 300 million citizens. The Biden administration is on track to administer at least 100 million doses of COVID-19 vaccine during its first 100 days in office. Reopening of the economy with the easing of the pandemic will significantly boost personal spending — the largest component of the U.S. GDP.
Our Top Picks
We have narrowed down our search to five corporate behemoths (market capital > $50 billion) as these companies have robust business model and a powerful brand value. These stocks have strong growth potential for 2021 and witnessed solid earnings estimation revisions in past 30 days. Each of our picks 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 performance of our five picks year to date.
Apple Inc. (AAPL - Free Report) has an expected earnings growth rate of 36.3% for the current year (ending September 2021). The company has long-term (3-5 years) growth rate of 11.5% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 10.9% over the past 30 days.
The Goldman Sachs Group Inc. (GS - Free Report) has an expected earnings growth rate of 15.8% for the current year. The company has long-term growth rate of 19.2% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 8.2% over the past 30 days.
Facebook Inc. has an expected earnings growth rate of 11.8% for the current year. The company has long-term growth rate of 19.2% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 9.4% over the past 30 days.
The Estée Lauder Companies Inc. (EL - Free Report) has an expected earnings growth rate of 44.2% for the current year (ending June 2021). The company has long-term (3-5 years) growth rate of 13.7% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 13.4% over the past 30 days.
Capital One Financial Corp. (COF - Free Report) has an expected earnings growth rate of more than 100% for the current year. The company has long-term growth rate of 14.7% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 22.7% over the past 30 days.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
4 Factors to Add Fuel to the Bull Market in 2021: 5 Top Picks
The bull market of Wall Street, which commenced in April 2020 after exiting the coronavirus-induced bear market, continues in 2021, barring some fluctuations. Major indexes for both the large-cap, mid-cap and small-cap segments are currently hovering around their all-time highs.
Meanwhile, a section of economists and financial experts are concerned that the current market valuation may be susceptible to soaring yield on Treasury Notes and inflationary expectations. However, we believe that four factors will support Wall Street's northbound journey in the days ahead. Let's take a look at those factors.
Impressive Corporate Profits and GDP
The fourth-quarter 2020 earnings results have been positive so far after three consecutive quarters of negative growth. Overall, the fourth-quarter earnings for the S&P 500 Index are projected to be up 2.8% year over year on 2.8% higher revenues. The initial projection was a decline of 7.8% in earnings on 0.3% higher revenues. More importantly, the 2021 earnings for the S&P 500 Index are estimated to up 27.6% on 8.8% higher revenues.
Strong earnings results of the last quarter of 2020 and an impressive projection for 2021 indicates that the U.S. economy is coming out of the coronavirus-induced uncertainties at faster-than-expected rate.
On Feb 1, the Congressional Budget Office projected that the U.S. economy will expand 4.6% in 2021 after contracting 3.5% last year. The economy is expected to reach the pre-pandemic level of February 2020 by mid-2021, primarily backed by unprecedented fiscal and monetary stimulus provided in 2020.
According to the business and academic economists surveyed in February by the Wall Street Journal, U.S. GDP is estimated to expand nearly 4.9% this year, an improvement from their 4.3% forecast in January. On Feb 17, the Atlanta Fed projected that the first-quarter 2021 GDP will surge 9.5%.
Unprecedented Fiscal Stimulus
In March 2020, the previous Trump administration injected $2.2 trillion stimulus that included weekly unemployment benefit and small-business paycheck protection program. In December 2020, the U.S. Congress approved another $900 billion coronavuris-aid package.
Moreover, the Democrats are moving forward with President Joe Biden’s proposed $1.9 trillion COVID-19 relief package. On Feb 12, the Ways and Means Committee of the House approved $940 billion of Biden's proposal. This includes $1,400 payments for millions of U.S. citizens. On Feb 10, the Education and Labor Committee approved the hike in the federal minimum wage from $7.25 to $15 per hour over five years.
The benefits of fiscal stimulus is evident as retail sales and core (excluding auto) retail sales jumped 5.3% and 5.9%, respectively in January after dropping 1% in December. The $900 stimulus package that includes direct payments of up to $600 per adult and enhanced jobless benefits of $300 per week was the primary reason behind the retail sales' jump.
Fed to Pursue Easy Monetary Policies
On Feb 10, the Fed chairman Jerome Powell said at the Economic Club of New York that the central bank will patiently pursue accommodative monetary policies as the labor market has a long way to go to achieve a near-full employment level that prevailed prior to the onset of the global coronavirus outbreak.
Amid the pandemic, Fed adopted a game-changing strategy of giving unemployment more importance over inflation. Moreover, benign inflation will enable the central bank to continue with a record-low interest rate of 0-0.25% for a longer period.
Moreover, the Fed will continue to buy at least $120 billion of bonds ($80 billion of Treasury bonds and $40 billion of agency mortgage-backed securities) per month “until substantial further progress has been made toward the central bank's maximum employment and price stability goals.”
Massive Savings and Strong Pent-Up Demand
This week, Goldman Sachs reported that currently U.S. citizens have $1.5 trillion in "excess" or "forced" savings that could climb to $2.4 trillion by mid-2021. This massive savings was due to concerns over pandemic-led economic uncertainties. Consumers were restrained or restricted by the government to spend on those items that were closed during lockdowns.
On Feb 11, President Biden said that by the end of the summer, the U.S. will have adequate doses of COVID-19 vaccines to administer to more than 300 million citizens. The Biden administration is on track to administer at least 100 million doses of COVID-19 vaccine during its first 100 days in office. Reopening of the economy with the easing of the pandemic will significantly boost personal spending — the largest component of the U.S. GDP.
Our Top Picks
We have narrowed down our search to five corporate behemoths (market capital > $50 billion) as these companies have robust business model and a powerful brand value. These stocks have strong growth potential for 2021 and witnessed solid earnings estimation revisions in past 30 days. Each of our picks 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 performance of our five picks year to date.
Apple Inc. (AAPL - Free Report) has an expected earnings growth rate of 36.3% for the current year (ending September 2021). The company has long-term (3-5 years) growth rate of 11.5% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 10.9% over the past 30 days.
The Goldman Sachs Group Inc. (GS - Free Report) has an expected earnings growth rate of 15.8% for the current year. The company has long-term growth rate of 19.2% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 8.2% over the past 30 days.
Facebook Inc. has an expected earnings growth rate of 11.8% for the current year. The company has long-term growth rate of 19.2% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 9.4% over the past 30 days.
The Estée Lauder Companies Inc. (EL - Free Report) has an expected earnings growth rate of 44.2% for the current year (ending June 2021). The company has long-term (3-5 years) growth rate of 13.7% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 13.4% over the past 30 days.
Capital One Financial Corp. (COF - Free Report) has an expected earnings growth rate of more than 100% for the current year. The company has long-term growth rate of 14.7% compared with S&P 500's estimated long-term growth rate of 9.7%. The Zacks Consensus Estimate for the current year has improved 22.7% over the past 30 days.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>