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Wall Street Cheers Soft Inflation Data: 5 Growth Picks

For the most part of this year, the U.S. stock market has been bleeding owing to stubbornly high inflation, compelling the Federal Reserve to tighten its monetary policy. Consumer spending slowed down because of a hawkish Fed, and consequently, economic growth was disrupted.

However, signs of inflation cooling down in the month of October increased investors’ risk appetite, and stocks logged their best rally since 2020 on Nov 10. The Dow surged more than 1,200 points yesterday and closed at its highest level since August.

Similarly, the broader S&P 500 closed at its highest level since Sep 12, while the tech-laden Nasdaq registered its biggest one-day rise in percentage point terms since March 2020.

The Bureau of Labor Statistics, in fact, noted that the consumer price index (CPI) increased 7.7% from a year ago in October. But the annual rise in inflation was down from September’s 8.2%. At the same time, the CPI increased less than expected in the prior month.

What’s more, the core CPI, which excludes goods and service costs, rose 6.3% on an annual basis, slightly below September’s 6.6%, which was incidentally the highest year-over-year jump since August 1982.

Nonetheless, thanks to such soft inflation data, the Fed is now widely expected to slow down its pace of rate hikes in the upcoming months, thereby propelling economic growth and boosting stock market returns.

Lest we forget, the Fed has already approved its fourth-straight 0.75 percentage point rate hike in early November, taking the benchmark rate to between 3.75% and 4%, the highest in 14 years.

Talking about stock market returns, the period from November to January usually bodes well for Wall Street. The S&P 500, on average, advanced 4.5% in the said period since 1936, more than its overall three-month average gain of 2.9%, per quantitative analysts at the Bank of America, citing a MarketWatch article.

Additionally, stocks tend to do well after midterm elections. As mentioned in the Schwab article, since 1946, in 17 out of 19 midterms, the stock market has given better returns in the six-month period following an election compared to the six months leading up to it. On Nov 8, Americans already voted, so it’s now expected that the stock market would steadily scale upward.

Banking on these positive developments, investors should place their bets on fundamentally sound growth stocks. We have highlighted five stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy), and a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 stocks here.

Archer Daniels Midland ADM is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. ADM has a Zacks Rank #1 and a Growth Score of A.

The Zacks Consensus Estimate for its current-year earnings has moved up 9.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 42.6%.

Charles River Associates CRAI is one of the leading global consulting firms. CRAI has a Zacks Rank #2 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings has moved up 9.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 12.2%.

Murphy USA MUSA is a leading independent retailer of motor fuel and convenience merchandise in the United States. MUSA has a Zacks Rank #2 and a Growth Score of A.

The Zacks Consensus Estimate for its current-year earnings has moved up 11.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 69.8%.

Merck & Co. MRK, based in Kenilworth, NJ, boasts more than six blockbuster drugs in its portfolio, with PD-L1 inhibitor, Keytruda, approved for several types of cancer, alone accounting for around 40% of its pharmaceutical sales. MRK has a Zacks Rank #2 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 22.6%.

New Fortress Energy NFE operates as an integrated gas-to-power company. NFE has a Zacks Rank #1 and a Growth Score of A. The Zacks Consensus Estimate for its next-year earnings has moved up 35.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 297.2%.

Shares of Archer Daniels Midland, Charles River Associates, Murphy USA, Merck and New Fortress Energy have already gained 39.5%, 28.2%, 50.8%, 32.9% and 106.2%, respectively, on a year-to-date basis.

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Charles River Associates (CRAI) : Free Stock Analysis Report
 
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
New Fortress Energy LLC (NFE) : Free Stock Analysis Report
 
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