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Wall Street Regains Momentum Amid Fed Rate Hike: 5 Top Picks

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·7 min read
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U.S. stock markets regained momentum last week (ended Mar 18) as the major stock indexes recorded their best weekly performance since November 2020. Last week, the Fed raised the benchmark interest rate, for the first time in more than three years. Surprisingly, Wall Street welcomed the decision with a broad-based rally.

Stock markets are expected to continue their northbound movement in the near-term. At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank and strong momentum. Five of them are — Chevron Corp. CVX, Nucor Corp. NUE, The Kroger Co. KR, W. R. Berkley Corp. WRB and The Mosaic Co. MOS.

Wall Street Rebounds

Last week, the Dow, the S&P 500 and the Nasdaq Composite –jumped 5.5%, 6.2% and 8.2%, respectively. The Dow recorded its weekly gains after four-straight weekly losses. Both the S&P 500 and the Nasdaq Composite posted gains after two consecutive weeks of losses.

This turnaround happened despite the fact that on Mar 16, the Fed announced that it would raise the benchmark interest rate by 25 basis points effective immediately. The Fed funds flow rate will now be hiked to the range of 0.25-0.50% from 0-0.25% set by the central bank on March 2022 to combat the pandemic.

Markets Seem Oversold

Wall Street has been suffering from a severe bad patch since mid-January after performing astonishingly in the pandemic-ridden 2020 and 2021. Despite last week’s pull back — the Dow, the S&P 500 and the Nasdaq Composite — are down 4.4%, 6.4% and 11.2%, respectively, year to date.

The Dow entered in correction territory on Mar 8,thugh the blue-chip index is currently out of that zone. The S&P 500 fell into correction territory on Feb 22, for the first time since Mar 2020. However, the broad-market index is currently out of that zone. The Nasdaq Composite entered in correction territory on Jan 18 and further fell into bear territory on Mar 8. Although, the tech-heavy index has managed to exit the bear market, it is still in correction zone.

This was the first broad-based market correction since the formation of the new bull market on July 2020, exiting the coronavirus-induced short bear market. Therefore, the market was oversold even before the Fed hiked its interest rate.

Moreover, the way the rate sensitive technology and consumer discretionary sectors climbed last week, it seems that a 2% hike in the interest rate this year is already priced in market valuation. Consequently, the rise in the Fed fund rate, which was in line with market’s expectation bolstered investors’ confidence in risky assets like equities.

Momentum Likely to Continue

Soaring inflation, prolonged disruptions in the global supply-chain system and the geopolitical conflict between Russia and Ukraine are spreading jitters in markets worldwide. However, the overall trend of the market will remain northbound on the back of the strong fundamentals of the U.S. economy.

The U.S. economy will get more upside from the government’s infrastructure spending. On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.

The infrastructure development project will be a key catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications should benefit immensely with more job creation.

Moreover, the White House wants the Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease the shortage of the components vital to many industries.

Our Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) momentum stocks that have popped year to date. These stocks have seen strong earnings estimate revisions within the last 30 days indicating that the market is expecting this companies to do good business in the near-term.

Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below sholws the price performance of our five picks year to date.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Chevron is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. CVX’s existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin. The WTI crude oil price is hovering well above $100 per barrel. The price is likely to remain elevated as the Russia-Ukraine conflict has intensified.

Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. CVX now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel — particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.

The stock price of Chevron has jumped 37.8% year to date. The Zacks Consensus Estimate for current-year earnings improved 15.5% over the last 30 days.

Nucor is committed to expand its production capabilities and grow its business through strategic acquisitions. Nucor has already commissioned some of its growth projects. NUE is committed to boosting production capacity, which should drive profitable growth and strengthen its position as a low-cost producer.

NUE is also seeing strong momentum in the non-residential construction market. Nucor is also seeing strong demand in the heavy equipment market. NUE remains focused on achieving greater penetration of automotive market because of the segment’s long-term growth opportunities. Higher steel prices due to tight supply and higher end-market demand should also drive Nucor’s margins.

The stock price of NUE has surged 19.3% year to date. The Zacks Consensus Estimate for current-year earnings improved 9.1% over the last 7 days.

The Kroger has been undertaking efforts to strengthen its position not only with respect to products but also in terms of the way consumers shop. KR has been making investments to enhance product freshness and quality as well as expand digital capabilities. Further, Kroger has been augmenting “Our Brands” portfolio by launching new products.

Management provided an upbeat outlook for fiscal 2022 projecting identical sales, without fuel, in the band of 2-3%. KR remains committed to doubling its digital business and profitability by the end of 2023.

The stock price of Kroger has climbed 23.3% year to date. The Zacks Consensus Estimate for current-year earnings improved 6.7% over the last 30 days.

W. R. Berkley has been benefiting from its insurance business, performing well on the increase in premium written over the past many years. W. R. Berkley has been investing in numerous startups since 2006 and has established new units in growing international markets.

W. R. Berkley’s international business is poised for growth supported by the emerging markets. WRB’s solid capital position enables capital deployment. Investment in alternative assets should help improve investment income going forward.

The stock price of W. R. Berkley has advanced 16.5% year to date. The Zacks Consensus Estimate for current-year earnings improved 2.5% over the last 7 days.

The Mosaic is likely to gain from higher demand for fertilizers. Demand for phosphate and potash in North America was strong in 2021, and the momentum is likely to continue this year. Strong grower economics and crop commodity prices are driving potash demand globally.

The Vale Fertilizantes buyout is also expected to deliver significant synergies. Mosaic is also expected to benefit from its cost-reduction actions, leading to an improvement in its operating cost structure. MOS’ efforts to lower debt, streamline processes, centralize mining operations and automation are encouraging.

The stock price of Mosaic has soared 58% year to date. The Zacks Consensus Estimate for current-year earnings improved 9% over the last 7 days.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Chevron Corporation (CVX) : Free Stock Analysis Report

Nucor Corporation (NUE) : Free Stock Analysis Report

W.R. Berkley Corporation (WRB) : Free Stock Analysis Report

The Kroger Co. (KR) : Free Stock Analysis Report

The Mosaic Company (MOS) : Free Stock Analysis Report

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