6 Stocks Aiding Indexes to Exit Bear-Market Territory

Situations change faster than weather in Wall Street. It commenced 2020 from where it left off last year. However, the market’s impressive bull run continued till mid- February, after which the coronavirus began to spread rapidly across the world. The global economy almost came to a standstill on account of the imposition of lockdowns across the world in order to curb the spread of the deadly virus.

Anticipating a global economic recession, which many economists warned may be tougher than the Great Depression of 1930s, investors started panic selling of risky assets like equities, ending the historically longest bull run of Wall Street. All three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — entered into the bear-market territory (decline at least 20% from the recent high) within less than three weeks.

Recovery Starts Aggressively

Major indexes entered into the bear-market territory during Mar 9-10. Thereafter, a stiff downtrend continued till Mar 23 after which the indexes witnessed an overall northbound trend barring minor fluctuations. As on Apr 14, all three major stock indexes are out of the bear-market territory.

As of Apr 14, the Dow, the S&P 500 and the Nasdaq Composite have rallied 31.5%, 29.9% and 28.4%, respectively, from their Mar 23-low. The Dow is still 23.5% away from its all-time high recorded on Feb 12. The S&P 500 and the Nasdaq Composite are down 16.1% and 13.4%, respectively, from their all-time high recorded on Feb 19. Year to date, the Dow, the S&P 500 and the Nasdaq Composite - are down 16.1%, 11.9% and 5.1%, respectively.

Will Recovery Sustain?

Economists and financial experts are currently divided on whether the market has already reached its lowest level or the ongoing momentum is just a bear-market rally. Nevertheless, some positive signs are already visible. First, negative estimates whether corporate earnings, the U.S. and the global GDP, or skyrocketing unemployment, are already factored in market valuation.

Second, the U.S. economy, at least a large number of states, is expected to open in early May. The White House is cautiously optimistic regarding the fact that the outbreak of the deadly virus seems to be slowing down. Several Eurozone economies are also planning to open their economies.

Third, Unprecedented fiscal and monetary stimulus injected by the Trump administration and the Fed, and several major Eurozone and Asian economies have instilled investor confidence. All these positives will aid the recovery process.

Fourth, while it is certain that volatility will remain part of regular trading at least for next few months, extreme volatility seems to be receding. This is evident from the movement of the COBE VIX — popularly known as the best fear-gauge of Wall Street. In a nutshell, the VIX indicates market's expectation of a 30-day forward-looking volatility based on the near-term S&P 500 index options (both puts and calls).

The VIX recorded its recent low of 13.38 on Feb 14. Thereafter, the fear gauge skyrocketed steadily to reach to its all-time high of 85.47 on Mar 18. This reflects an astonishing surge of 538.8% in 22 trading days. However, after Mar 18, the fear gauge took a U-turn and fell to 37.76 on Apr 14. This marks a decline of 55.8% in just 18 trading days. The VIX is gradually approaching its historical average of 20.

6 Corporate Giants Fueling Recent Market Rally

The stock price movement of six corporate behemoths (market capital > $100 billion), which are members of any of the three major stock indexes, acted as a catalyst behind the indexes’ rally. Prices of these stocks skyrocketed during the period of Mar 23 to Apr 14 and still have upside left. Currently, each of these stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of six stocks since Mar 23.

 

Tesla Inc. TSLA has an expected earnings growth rate of 3,415.4% for the current year. The stock price has soared 63.5% during Mar 23 to Apr 14 and is still 36.5% away from its 52-week high.  

NIKE Inc. NKE has an expected earnings growth rate of 6% for the current year (ending May 2020). The stock price has rallied 39.3% during Mar 23 to Apr 14 and is still 20.7% away from its 52-week high.  

Lockheed Martin Corp. LMT has an expected earnings growth rate of 9.9% for the current year. The stock price has jumped 37.3% during Mar 23 to Apr 14 and is still 16.4% away from its 52-week high.  

NVIDIA Corp. NVDA has an expected earnings growth rate of 22.1% for the current year (ending January 2021). The stock price has climbed 33.5% during Mar 23 to Apr 14 and is still 11.4% short of its 52-week high.  

Microsoft Corp. MSFT has an expected earnings growth rate of 17.3% for the current year (ending June 2020). The stock price has advanced 27.7% during Mar 23 to Apr 14 and is still 9.8% away from its 52-week high.  

Cisco Systems Inc. CSCO has an expected earnings growth rate of 4.1% for the next year (ending July 2021). The stock price has surged 23.6% during Mar 23 to Apr 14 and is still 36.2% away from its 52-week high.  

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
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