Wall Street completed an impressive first half of 2021, after a stellar run in 2020, despite the pandemic. The three major stock indexes — the Dow, the S&P and the Nasdaq Composite —rallied 12.7%, 14.4% and 12.5%, respectively, in the first-half 2021.
Nationwide COVID-19 vaccinations, a sharp decline in new coronavirus cases, faster-than-expected reopening of the economy, an unprecedented fiscal stimulus, Fed’s ongoing easy-money policy and the Fed Chairman’s reiteration of inflation being transitory despite raising inflation forecast for 2021, significantly bolstered market participants’ confidence in risky assets like equities.
This scenario is likely to prevail in the near term and drive momentum stocks. Momentum investing calls for continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that a stock will only rise in the short to intermediate term.
CBO Raises Economic Outlook
The Congressional Budget Office (CBO) has raised its outlook for U.S. GDP growth rate in 2021 to 7.4%, a significant jump from 4.6% forecast on Feb 1. Thereafter, GDP is expected grow around 2.8% per annum through 2025.
The core PCE price index —- Fed’s favorite gauge for inflation — will rise to 2.8% in 2021 compared with the Fed’s estimate of 3.1%. The CBO said unemployment rate will fall to 4% in 2022. The yield on 10-Year U.S. Treasury Note, which is currently hovering around 1.5%, is expected to rise to 2.7% from the end of 2025.
Notably, on Jun 16, the Fed had raised the GDP growth rate for 2021 to 7% from 6.5% in March. The Fed reaffirmed that the unemployment rate will come down to 4.5% at the end of 2021.
Robust Projections for Q2 Earnings
Earnings estimates for second-quarter 2021 have been witnessing positive revisions. As of Jun 30, total earnings of the S&P 500 Index are expected to be up 61.6% year over year on 18.1% higher revenues. Notably, first-quarter earnings of the S&P 500 Index were up 49.3% year over year on 10.3% higher revenues.
One reason for this very high magnitude of year-over-year earnings and revenue growth was last year’s economic devastations owing to the global outbreak of the coronavirus. However, even if we overlook last year’s performance, our current projection for second-quarter 2021 earnings for the S&P 500 Index is 9.6% higher than pre-pandemic second-quarter 2019. (Read more:
Q2 Earnings Growth Reflects More Than Easy Comps
)
Strong Economic Data
The struggling labor market is showing enough indications to return to normalcy. On Jul 1, the Department of Labor reported that weekly jobless claims fell 51,000 to 364,000 for the week ended Jun 26, marking its lowest for the week ended Mar 14, 2020. Previous week’s data was revised upwardly to 415,000. The consensus estimate was 385,000.
However, the continuing claims (those who have already received unemployment benefit) increased 56,000 to 3.47 million for the week ended Jun 21. The four-week moving average (eliminating weekly volatility) for continuing claims fell by 75,000 to 3.48 million, the lowest since the week ended Mar 21, 2020.
The total number Americans receiving benefits across all types of government programs decreased by 180,890 to 14.66 million for the week ended Jun 14. However, nearly 7 million workers are yet to return to the job market compared with the pre-pandemic level.
The Institute of Supply Management (ISM) reported that its manufacturing purchasing managers’ index (PMI) for June dropped slightly to 60.6% from 61.2% in May. The consensus estimate was 60.8%. Likewise, IHS Markit reported that its manufacturing PMI for June decreased to 62.1% compared with a flash estimate of 62.6% but was unchanged from the May final reading.
Notably, any reading above 50 means expansion in manufacturing activities while a reading above 55 means strong expansion. Therefore, despite a slight drop in readings of both ISM and IHS Markit, U.S. manufacturing remained rock solid in June.
Our Top Picks
We have narrowed down our search to five large-cap (market capital > $10 billion) momentum stocks that witnessed robust earnings estimate revisions in the past seven to 30 days and have strong upside left for 2021. These stocks have skyrocketed more than 35% year to date. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a
Momentum Score
of A. 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.
Image Source: Zacks Investment Research
Continental Resources Inc.
CLR
explores, develops, and produces crude oil and natural gas primarily in the north, south, and east regions of the United States. It sells its crude oil and natural gas production to energy marketing companies, crude oil refining companies, and natural gas gathering and processing companies.
This Zacks Rank #1 company has expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6% over the past seven days. The stock price has soared 145% year to date.
Exxon Mobil Corp.
XOM
explores and produces crude oil and natural gas in the United States, Canada/Other Americas, Europe, Africa, Asia, and Australia/Oceania. It operates through the Upstream, Downstream and Chemical segments.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 0.3% over the past seven days. The stock price has jumped 53.5% year to date.
Freeport-McMoRan Inc.
FCX
is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as the smelting and refining of copper concentrates.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 3.9% over the past 30 days. The stock price has climbed 42.6% year to date.
General Motors Co.
GM
designs, builds, and sells cars, trucks, crossovers and automobile parts worldwide. It operates through the GM North America, GM International, Cruise and GM Financial segments.
The company has an expected earnings growth rate of 24.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 15.7% over the past 30 days. The stock price has appreciated 42% year to date.
CarMax Inc.
KMX
operates as a retailer of used vehicles in the United States. It operates in two segments, CarMax Sales Operations and CarMax Auto Finance.
The company has an expected earnings growth rate of 42.3% for the current year (ending February 2022). The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the past seven days. The stock price has surged 38.3% year to date.
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