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Markets continued to gain over last month, even though their advance was curbed by a number of factors. A rise in geopolitical tensions dragged down stocks over the month. Relations between the U.S. and Russia worsened over the attack on Syria.
Additionally, North Korea continued to worry political analysts and market watchers alike with its continual saber rattling. Economic data also took a turn for the worse, following a decline in retail and particularly auto sales. GDP also dipped and only first quarter earnings performance held out the hope for further gains.
April's Performance
For the month, the Nasdaq, S&P 500 and Dow advanced 2.3%, 0.9% and 1.3% respectively. During the month, benchmarks suffered a setback due to weak auto sales data, a dip in manufacturing growth and rise in geopolitical tensions.
Meanwhile, retail sales fell in March for two consecutive months, posting their worst two-month stretch in two years due to weak demand in automobile sector. However, strong quarterly earnings reports from companies helped benchmarks finish in green for the month.
Domestic Data Mixed, Retail Sales Fall
Economic reports released last month were something of a mixed bag. Both the ISM manufacturing and services indexes declined to 57.2 and 55.2, respectively. Consumer confidence declined in April to 120.3 from 124.9 in March.
Notably, retail sales declined in March for two consecutive months, posting their worst two-month stretch in two years. The decline is attributable to weak demand in automobile sector. Auto sales fell 1.2% declining for a third straight month. Moreover, gas and service station sales fell 1% because of lower fuel prices.
On the positive side, industrial production increased 0.5% while capacity utilization moved upward to 76.1. Construction spending increased by 0.8% in February. Additionally, durable orders increased by 0.7% while factory orders gained 1%.
Q1 GDP Plummets
The U.S. economy grew at its slowest pace in the first quarter in three years, owing to the smallest increase in consumer spending since the end of 2009. As per the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 0.7% in the first quarter of 2017, missing the Zacks Consensus Estimate of 1.2%. The last quarter of 2016 recorded a real GDP growth of 2.1%.
The slowdown in first quarter GDP growth is primarily attributable to sluggish consumer spending. Consumer spending increased 0.3%, marking the smallest increase since the last quarter of 2009. Number of purchases of durable goods, including big-ticket items, such as cars and refrigerators dropped. Spending on services also recorded its slowest growth in four years. Government spending at state and local levels also declined 1.7%, marking its largest fall in four years.
GDP growth was dragged down by almost a percentage point by low inventory investment. Meanwhile, fixed business investment gained 10.4% and was accountable for bulk of the GDP growth in the first quarter.
Job Additions Fall, Unemployment Slips
The U.S. created 98,000 jobs in March, significantly lower than expectations of 176,000 additions. One of the reasons for this weak payroll growth number was weather-related effects of the big storm that hit the Northeast last month. On the positive side, unemployment rate declined from 4.7% to 4.5%, its lowest level in almost ten years. Payrolls data also showed that average hourly wages increased 0.2% to $26.14.
While the actual unemployment figure was within the range of predictions, the number of jobs created missed economists’ expectations by nearly 80,000. Moreover, the number of job additions for January and February were revised down a cumulative 38,000 with 216,000 jobs witnessed in January followed by another 219,000 in February.
Q1 Earnings Depict Momentum
A 15-month decline in earnings was snapped in the third quarter. As companies begin to report earnings for the first quarter, that momentum seems to have been retained. We now have Q1 results from 181 S&P 500 members that have reported as of Jan 30 and which together account for 40% of the index’s total market capitalization.
Total earnings for these 181 S&P 500 members are up +10% from the same period last year on +4.3% higher revenues, with 75.7% beating EPS estimates and 64.1% beating revenue estimates. For the Finance sector, we now have Q1 results from 59.2% of the sector’s total market cap in the S&P 500 index. Total earnings for these Finance companies are up +9% from the same period last year on +7.3% higher revenues, with 67.4% beating EPS estimates and 65.1% beating revenue estimates.
Growth comparisons remain favorable even when looked at on an ex-Finance basis, highlighting the broad-based nature of the positive Q1 showing. This broad-based positivity comes across from the standout Q1 earnings reports in recent days, which have been from diverse backgrounds such as Caterpillar, DuPont, McDonald’s and others. (Read: Q1 Earnings Season Shows Broad-based Momentum)
Geopolitical Tensions Rise
The month witnessed a significant increase in geopolitical tensions, which had a detrimental impact on stocks. Initially, investors remained focused on the meeting between President Trump and his Chinese counterpart Xi Jinping.
Subsequently, the U.S. carried out a cruise missile attack on Shayrat air base near Homs, in a possible attempt to target President Bashar al-Assad’s regime which was held responsible for the chemical weapons attack in Syria last week. A meeting between U.S. and Russian foreign secretaries in Moscow on the Syrian chemical attack only served to raise tensions between the two countries.
Tensions between the U.S. and North Korea also continued to rise. Earlier, President Trump had said the U.S. is ready to deal with North Korea in case China does not come to help in this regard. Meantime, U.S. Navy sent a strike group towards the North Korean Peninsula, while North Korea warned the U.S. of a possible nuclear attack in case U.S continues to threaten her security over the region.
Trump’s Tax Plan Disappoints Investors
On Apr 26, the Trump administration unveiled a single page outline for tax-reform plan at a press conference. Steven Mnuchin and Gary Cohn rolled out the outline of White House’s tax-reform plan which included reduction of individual and corporate rates and simplification of the tax code. The plan promised to slash the top income tax rate from 39.6% to 35%. According to the plan, the number of personal income tax brackets would be reduced from seven to three.
However, investors had expected more details about the proposed tax-reform package from Trump administration. Investors remained disappointed with the lack of details, leading to losses for stocks.
French Election Fears Recede
During the second half of the month, investors remained focused on the Presidential election in France scheduled to be held on April 23rd. The rise in popularity of Melenchon, who is a euro skeptic, had unnerved investors with many expressing concern over a possible "Frexit."
After a close contest, centrist candidate Emmanuel Macron and far-right candidate Marine Le Pen emerged as top contenders for the final round of the presidential election in France scheduled to be held on May 7. Macron’s victory in the first round not only contributed to gains for European equities but also lifted investor confidence in the U.S.
Fed Hints at Balance Sheet Cuts, Warns on Valuations
In the minutes from its March meeting, the Federal Reserve hinted that it could begin reducing its $4.5 trillion balance sheet later this year. Though no time table was mentioned about the unwinding of the $4.5 trillion in bonds on its balance sheet, speculation arose that the central bank may roll back the principal amount to treasuries.
The Fed also raised concerns that stocks were overvalued. The minutes released by Fed showed that some measures of valuations, like price-to-earnings ratios had risen above historical norms.
5 Star Performers for April
I ran a screen on Research Wizard for companies with the following parameters:
1. Percentage price change over the last 4 weeks greater than or equal to 20 2. Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices 3. Expected earnings growth for the current financial year greater than or equal to 20% 4. Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
Here are the top 5 stocks that made it through this screen:
Weight Watchers International, Inc. (WTW - Free Report) is the largest provider of weight control programs in the world.
Price gain over the last 4 weeks = 35.1% Expected earnings growth for current year = 29.4%
Weight Watchers International has a Zacks Rank #1 (Strong Buy). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 16.64x.
CAI International, Inc. is one of the world's leading intermodal freight container leasing and management companies.
Central European Media Enterprises Ltd. is involved in the media and advertising industry in Eastern and Central Europe.
Price gain over the last 4 weeks = 32.3%
Central European Media Enterprises has a Zacks Rank #2 (Buy) and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 19.52x.
Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel.
Price gain over the last 4 weeks = 27.4%
Rocky Brands holds a Zacks Rank #1 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 15.78x.
Olympic Steel, Inc. (ZEUS - Free Report) is a specialized steel service center that processes and distributes flat- rolled carbon, stainless and tubular steel products.
Price gain over the last 4 weeks = 21.2%
Olympic Steel holds a Zacks Rank #2 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 16.58x.
Will Stocks Regain Momentum in May?
Stocks are facing challenges on several fronts at this time. Geopolitical tensions have heightened and are making themselves felt by curbing gains for stocks. The defense industry has notched up gains as a result, a trend which is likely to continue in the days to come.
Likewise, relations with North Korea, in particular, are likely to remain strained. However, a downturn in the tone of economic data is likely to have a more significant impact on stocks going ahead. Markets will now look to a stellar first quarter earnings performance to provide a much needed boost next month.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
Image: Bigstock
5 Best Performing Stocks of April
Markets continued to gain over last month, even though their advance was curbed by a number of factors. A rise in geopolitical tensions dragged down stocks over the month. Relations between the U.S. and Russia worsened over the attack on Syria.
Additionally, North Korea continued to worry political analysts and market watchers alike with its continual saber rattling. Economic data also took a turn for the worse, following a decline in retail and particularly auto sales. GDP also dipped and only first quarter earnings performance held out the hope for further gains.
April's Performance
For the month, the Nasdaq, S&P 500 and Dow advanced 2.3%, 0.9% and 1.3% respectively. During the month, benchmarks suffered a setback due to weak auto sales data, a dip in manufacturing growth and rise in geopolitical tensions.
Meanwhile, retail sales fell in March for two consecutive months, posting their worst two-month stretch in two years due to weak demand in automobile sector. However, strong quarterly earnings reports from companies helped benchmarks finish in green for the month.
Domestic Data Mixed, Retail Sales Fall
Economic reports released last month were something of a mixed bag. Both the ISM manufacturing and services indexes declined to 57.2 and 55.2, respectively. Consumer confidence declined in April to 120.3 from 124.9 in March.
Notably, retail sales declined in March for two consecutive months, posting their worst two-month stretch in two years. The decline is attributable to weak demand in automobile sector. Auto sales fell 1.2% declining for a third straight month. Moreover, gas and service station sales fell 1% because of lower fuel prices.
On the positive side, industrial production increased 0.5% while capacity utilization moved upward to 76.1. Construction spending increased by 0.8% in February. Additionally, durable orders increased by 0.7% while factory orders gained 1%.
Q1 GDP Plummets
The U.S. economy grew at its slowest pace in the first quarter in three years, owing to the smallest increase in consumer spending since the end of 2009. As per the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 0.7% in the first quarter of 2017, missing the Zacks Consensus Estimate of 1.2%. The last quarter of 2016 recorded a real GDP growth of 2.1%.
The slowdown in first quarter GDP growth is primarily attributable to sluggish consumer spending. Consumer spending increased 0.3%, marking the smallest increase since the last quarter of 2009. Number of purchases of durable goods, including big-ticket items, such as cars and refrigerators dropped. Spending on services also recorded its slowest growth in four years. Government spending at state and local levels also declined 1.7%, marking its largest fall in four years.
GDP growth was dragged down by almost a percentage point by low inventory investment. Meanwhile, fixed business investment gained 10.4% and was accountable for bulk of the GDP growth in the first quarter.
Job Additions Fall, Unemployment Slips
The U.S. created 98,000 jobs in March, significantly lower than expectations of 176,000 additions. One of the reasons for this weak payroll growth number was weather-related effects of the big storm that hit the Northeast last month. On the positive side, unemployment rate declined from 4.7% to 4.5%, its lowest level in almost ten years. Payrolls data also showed that average hourly wages increased 0.2% to $26.14.
While the actual unemployment figure was within the range of predictions, the number of jobs created missed economists’ expectations by nearly 80,000. Moreover, the number of job additions for January and February were revised down a cumulative 38,000 with 216,000 jobs witnessed in January followed by another 219,000 in February.
Q1 Earnings Depict Momentum
A 15-month decline in earnings was snapped in the third quarter. As companies begin to report earnings for the first quarter, that momentum seems to have been retained. We now have Q1 results from 181 S&P 500 members that have reported as of Jan 30 and which together account for 40% of the index’s total market capitalization.
Total earnings for these 181 S&P 500 members are up +10% from the same period last year on +4.3% higher revenues, with 75.7% beating EPS estimates and 64.1% beating revenue estimates. For the Finance sector, we now have Q1 results from 59.2% of the sector’s total market cap in the S&P 500 index. Total earnings for these Finance companies are up +9% from the same period last year on +7.3% higher revenues, with 67.4% beating EPS estimates and 65.1% beating revenue estimates.
Growth comparisons remain favorable even when looked at on an ex-Finance basis, highlighting the broad-based nature of the positive Q1 showing. This broad-based positivity comes across from the standout Q1 earnings reports in recent days, which have been from diverse backgrounds such as Caterpillar, DuPont, McDonald’s and others. (Read: Q1 Earnings Season Shows Broad-based Momentum)
Geopolitical Tensions Rise
The month witnessed a significant increase in geopolitical tensions, which had a detrimental impact on stocks. Initially, investors remained focused on the meeting between President Trump and his Chinese counterpart Xi Jinping.
Subsequently, the U.S. carried out a cruise missile attack on Shayrat air base near Homs, in a possible attempt to target President Bashar al-Assad’s regime which was held responsible for the chemical weapons attack in Syria last week. A meeting between U.S. and Russian foreign secretaries in Moscow on the Syrian chemical attack only served to raise tensions between the two countries.
Tensions between the U.S. and North Korea also continued to rise. Earlier, President Trump had said the U.S. is ready to deal with North Korea in case China does not come to help in this regard. Meantime, U.S. Navy sent a strike group towards the North Korean Peninsula, while North Korea warned the U.S. of a possible nuclear attack in case U.S continues to threaten her security over the region.
Trump’s Tax Plan Disappoints Investors
On Apr 26, the Trump administration unveiled a single page outline for tax-reform plan at a press conference. Steven Mnuchin and Gary Cohn rolled out the outline of White House’s tax-reform plan which included reduction of individual and corporate rates and simplification of the tax code. The plan promised to slash the top income tax rate from 39.6% to 35%. According to the plan, the number of personal income tax brackets would be reduced from seven to three.
However, investors had expected more details about the proposed tax-reform package from Trump administration. Investors remained disappointed with the lack of details, leading to losses for stocks.
French Election Fears Recede
During the second half of the month, investors remained focused on the Presidential election in France scheduled to be held on April 23rd. The rise in popularity of Melenchon, who is a euro skeptic, had unnerved investors with many expressing concern over a possible "Frexit."
After a close contest, centrist candidate Emmanuel Macron and far-right candidate Marine Le Pen emerged as top contenders for the final round of the presidential election in France scheduled to be held on May 7. Macron’s victory in the first round not only contributed to gains for European equities but also lifted investor confidence in the U.S.
Fed Hints at Balance Sheet Cuts, Warns on Valuations
In the minutes from its March meeting, the Federal Reserve hinted that it could begin reducing its $4.5 trillion balance sheet later this year. Though no time table was mentioned about the unwinding of the $4.5 trillion in bonds on its balance sheet, speculation arose that the central bank may roll back the principal amount to treasuries.
The Fed also raised concerns that stocks were overvalued. The minutes released by Fed showed that some measures of valuations, like price-to-earnings ratios had risen above historical norms.
5 Star Performers for April
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
1. Percentage price change over the last 4 weeks greater than or equal to 20
2. Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
3. Expected earnings growth for the current financial year greater than or equal to 20%
4. Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top 5 stocks that made it through this screen:
Weight Watchers International, Inc. (WTW - Free Report) is the largest provider of weight control programs in the world.
Price gain over the last 4 weeks = 35.1%
Expected earnings growth for current year = 29.4%
Weight Watchers International has a Zacks Rank #1 (Strong Buy). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 16.64x.
CAI International, Inc. is one of the world's leading intermodal freight container leasing and management companies.
Price gain over the last 4 weeks = 32.9%
CAI International has a P/E (F1) of 13x and its expected earnings growth for the current year is more than 100%. The stock holds a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Central European Media Enterprises Ltd. is involved in the media and advertising industry in Eastern and Central Europe.
Price gain over the last 4 weeks = 32.3%
Central European Media Enterprises has a Zacks Rank #2 (Buy) and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 19.52x.
Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel.
Price gain over the last 4 weeks = 27.4%
Rocky Brands holds a Zacks Rank #1 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 15.78x.
Olympic Steel, Inc. (ZEUS - Free Report) is a specialized steel service center that processes and distributes flat- rolled carbon, stainless and tubular steel products.
Price gain over the last 4 weeks = 21.2%
Olympic Steel holds a Zacks Rank #2 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 16.58x.
Will Stocks Regain Momentum in May?
Stocks are facing challenges on several fronts at this time. Geopolitical tensions have heightened and are making themselves felt by curbing gains for stocks. The defense industry has notched up gains as a result, a trend which is likely to continue in the days to come.
Likewise, relations with North Korea, in particular, are likely to remain strained. However, a downturn in the tone of economic data is likely to have a more significant impact on stocks going ahead. Markets will now look to a stellar first quarter earnings performance to provide a much needed boost next month.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
Click here for Zacks' private trades >>