The Zacks Analyst Blog Highlights Exxon Mobil, 3M, Marriott International, ConocoPhillips, and Automatic Data Processing

·7-min read

For Immediate Release

Chicago, IL – May 12, 2022 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Exxon Mobil Corp. XOM, 3M Co. MMM, Marriott International Inc. MAR, ConocoPhillips COP and Automatic Data Processing Inc. ADP.

Here are highlights from Wednesday’s Analyst Blog:

Is Recession Imminent, or Have Bears Gripped the Market?

Wall Street has been witnessing a free fall since the beginning of this year, barring the second half of March. The day-to-day fluctuations of the major indexes are higher than what we saw in February-March 2020, during the coronavirus outbreak.

Market participants are facing the real effect of the pandemic as the impact of coronavirus and its variants on daily activities are now much less. As real-life activities return to normalcy and fiscal and monetary stimuli have stopped, the pain of the pandemic is being felt by investors.

Skyrocketing inflation, complete destruction of the global supply-chain system and geopolitical conflicts have raised serious doubts about global economic growth. In the United States, a large section of economists and financial experts apprehend a recession either in 2022 or next year.

Consequently, extreme volatility appeared in the U.S. stock markets. However, has the U.S. economy turned too weak to be susceptible to a recession or are the bears now raging on Wall Street, leading to the downtrend?

Economic Downturn and the Fed

U.S. inflation is currently at a 40-year high and the Fed is gradually shifting from an ultra-dovish to an ultra-hawkish policy regime. Per a large section of market watchers, supply-chain devastation and the termination of the easy-money policy are likely to reduce aggregate demand, resulting in economic contraction.

U.S. GDP contracted 1.4% in first-quarter 2022 after gaining 6.9% in the previous quarter. This unexpected contraction was primarily due to a record-high trade deficit, lower government spending and declining inventories. Consumer expenditure and business investment remained steady. Even Fed Chair Jerome Powell considered these factors in his post-FOMC statement in May.

Perhaps the Fed has considered "inflation as transitory" for too long. Several measures of inflation have started elevating since May 2021. Yet, in December, the central bank realized that inflation turned into a genuine threat that needs to be tackled with harsher measures.

The central bank terminated the $120 billion per month quantitative easing program in March, and raised the benchmark lending rate by 25 basis points the same month and by 50 basis points in May. It also gave a clear signal that two more rate hikes of 50 basis points are coming in June and July and that systematic shrinking of the $9 trillion balance sheet would begin on Jun 1.

However, the predominant source of soaring inflation is the supply-side disturbance. Excessive dependence of U.S. corporates on China for cheap inputs, ranging from consumer products for daily use to high-end technology products, is taking a toll as the latter is under lockdown due to the resurgence of COVID-19. The Russia-Ukraine war is another concern.

In this situation, it remains to be seen how effective it will be to contain inflation by hiking interest rate, squeezing liquidity and thereby reducing demand. Several recently, released economic data, like, manufacturing, services, labor market and retail sales remained solid despite deviation from their picks. Finally, first-quarter earnings results of corporate America are coming in better than expected.

Bears Flying High

While the stock market bulls roar with a long-term rally, bears wait for the market's downturn. In this regard, some economic factors act as catalysts.

For example, Wall Street ended 2019 on an impressive note with the Dow, the S&P 500 and the Nasdaq Composite — rallying 22.3%, 28.9% and 35.2%, respectively. At that point, several economists and market experts started warning that the market is overvalued, especially when the U.S. GDP growth rate declined to below 3% with economic expansion continuing for 11 years — marking the longest expansion in history.

During the 11-year long bull run, the S&P 500 rallied 400%. Moreover, the Dow and the Nasdaq Composite also skyrocketed more than 300% and 500%, respectively. At a certain stage, these enormous gains have to be capitalized. The coronavirus-led mayhem acted as a catalyst to sell stocks and realize gains.

The pandemic-induced bear market reached its trough on Mar 23, 2020. Wall Street witnessed a new bull market thereafter exiting the historically shortest bear market supported by the unprecedented fiscal and monetary stimulus. The Dow, the S&P 500 and the Nasdaq Composite posted their recent highs on Jan 5, 2022, Jan 4, 2022 and Nov 22, 2021.

Since Mar 23, 2020 to the recent highs, the Dow, the S&P 500 and the Nasdaq Composite have rallied 102.9%, 119.8% and 144.5%, respectively. Therefore, another term of profit realization is due. This time the economic factor is mounting inflation.

As of May 10, the Dow, the S&P 500 and the Nasdaq Composite have declined 13%, 17% and 27.6% from their recent highs. The Nasdaq Composite is in bear territory while both the Dow and the S&P 500 are in correction zone. On May 9, the S&P 500 ended below 4,000 for the first time since March 2021 and the Nasdaq Composite closed at its lowest since November 2020.

How to Invest

Wall Street is no longer overvalued. In 2022, the largest driver of the U.S. stock markets will be the nation's strong economic fundamentals. The U.S. economy will get more upside from the government's infrastructure spending.

Markets may remain volatile in the near future. However, we expect a good recovery in the second half once Fed's policy changes are adjusted fully in market's valuation. At this stage, it will be better to stay with quality stocks. Invest in U.S. corporate bigwigs (market capital > $50 billion) with a favorable Zacks Rank.

These companies have a robust business model and globally acclaimed brand value. They have a strong balance sheet and generate solid free cash flow. Five of these are — Exxon Mobil Corp., 3M Co., Marriott International Inc., ConocoPhillips, and Automatic Data Processing Inc..

These companies reported strong earnings results in their last announced quarter and issued a solid guidance. These stocks carry either a Zacks Rank #1 (Strong Buy) or 2(Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.

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