Wall Street bulls, which dominated in the first three quarters of this year, continued their forward march in the first month of the final quarter. Wall Street ended October, generally known as a tough month for investors, with an impressive rally.
All three major stock indexes ---- the Dow, the S&P 500 and Nasdaq Composite ---- advanced 0.5%, 2% and 3.7%, respectively, last month. Moreover, the broad-market S&P 500 Index achieved a new all-time high. Additionally, the Dow and the Nasdaq Composite are currently 1.2% and 0.5% away from their all-time highs.
Three Major Drivers of October
First, third-quarter earnings results so far are not as disappointing as estimated at the starting of the reporting cycle. Moreover, overall guidance is not as weak till now as was feared. As of Oct 31, 341 S&P 500 members reported third-quarter results. Total earnings for these index members are down 0.6% from the same period last year while revenues increased 4.9%. Notably, 73.9% companies surpassed EPS estimates while 60.1% beat revenue estimates.
Second, on Oct 25, the Office of the U.S. Trade Representative stated that both the United States and China are moving closer to finalizing parts of a phase one trade deal. Possibility of at least an interim trade deal between the largest trading countries of the world for more than a year old tariff war boosted investors’ confidence on risky assets like equities.
Third, market participants were widely expecting a third rate cut in October owing to a slowdown in job growth rate and muted inflation along with global economic downturn. Finally, the Fed reduced the benchmark lending rate by 25 basis points to the range of 1.5-1.75% on Oct 30 and decided to adopt a stable monetary policy hereafter, which was largely appreciated by investors.
On Oct 29, the Conference Board reported that U.S. consumer confidence in October came in at a reading of 125.9, slightly below the revised reading of 126.3 in September (initially 125.1 reported). Despite a minor decline, Americans overall remain highly optimistic about the economy. As per Lynn Franco, director of economic indicators of the Conference Board, “Confidence levels remain high and there are no indications that consumers will curtail their holiday spending.”
Moreover, the fourth quarter of any year includes the holiday sales season. U.S. consumer spending, which accounts for nearly 70% of the GDP, maintained its momentum after it bounced back in the second quarter. U.S. GDP grew 1.9% in the third quarter, surpassing the consensus estimate of 1.6% primarily buoyed by a 2.9% annualized rate growth of personal consumption expenditure.
Additionally, even a temporary trade truce between the United States and China will bolster business confidence and stabilize overall U.S. economic growth. This in turn will strengthen investors’ confidence in the stock market.
Our Top Picks
At this stage, we have narrowed down our search to five stocks, which popped in October and still have strong momentum. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a Momentum Style Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Unifi Inc. UFI manufactures and sells recycled and synthetic products made from polyester and nylon in the United States, Brazil, China, and internationally. It operates in four segments: Polyester, Nylon, Brazil and Asia. The Zacks Consensus Estimate for the current year has improved by 3.5% over the past 30 days. The company has an expected earnings growth rate of 584.6% for the current year. The stock price has jumped 31.6% in the past month.
BioDelivery Sciences International Inc. BDSI is a specialty pharmaceutical company focused on the development and commercialization of treatments in the areas of pain management and drug addiction. The Zacks Consensus Estimate for the current year has improved by 19.2% over the past 30 days. The company has an expected earnings growth rate of 71.2% for the current year. The stock price has soared 28.2% in the past month.
Crocs Inc. CROX designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women and children worldwide. It offers various footwear products, including clogs, sandals, flips and slides, shoes, and boots under the Crocs brand name. The Zacks Consensus Estimate for the current year has improved by 9.2% over the past 30 days. The company has an expected earnings growth rate of 80.2% for the current year. The stock price has surged 23.7% in the past month.
Anika Therapeutics Inc. ANIK provides orthopedic medicines for patients with degenerative orthopedic diseases and traumatic conditions in the United States and internationally. It develops, manufactures and commercializes therapeutic products based on its proprietary hyaluronic
acid technology. The Zacks Consensus Estimate for the current year has improved by 16% over the past 30 days. The company has an expected earnings growth rate of 59.8% for the current year. The stock price has surged 23.6% in the past month.
Plexus Corp. PLXS provides electronics manufacturing services in the Americas, Europe, the Middle East, Africa and the Asia-Pacific. It offers products for healthcare and life sciences, industrial and commercial communications, and aerospace and defense sectors. The Zacks Consensus Estimate for the current year has improved by 4.1% over the past 30 days. The company has an expected earnings growth rate of 19.2% for the current year. The stock price has climbed 21.5% in the past month.
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