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Wall Street is set to record back-to-back monthly gains in May as market participants applaud the gradual reopening of the U.S. as well as other major economies. A large section of economists and financial experts, who were skeptical about the growth of the U.S. economy just a month ago, are now expressing views of a quicker-than-expected recovery from the coronavirus-induced devastations.
Stock market's momentum is likely to continue in the coming months as the global economy will gather pace systematically after nearly three months of partial or full lockdowns.
Economy Reopens With Strong Pent-Up Demand
All 50 states have decided to ease lockdown restrictions and open up their economies in some form by this month end. Data from booking platform OpenTable revealed that in some states, U.S. consumers are slowly returning to restaurants. The Wall Street Journal recently reported growing freight trucking activities.
Notably, the U.S. economy was performing well buoyed by strong consumer spending before the advent of coronavirus. However, the lockdowns imposed by the United Sates and across the world along with the breakdown of global supply chain system, significantly dented both consumer and business confidence.
However, an unprecedented $8 trillion fiscal and monetary stimulus injected by the U.S. government and the Fed has instilled investor confidence. Moreover, the central bank's decision to keep the benchmark interest rate at 0% will also make funds available to both businesses and individuals. Additionally, several Eurozone countries, Japan and the leading emerging market economies provided around $8-9 trillion of stimulus packages.
The Trump administration's decision to spend money in the form of unemployment insurance and giving stimulus checks to retirees, massive restructuring package to small businesses and the Fed's decision to inject money into the economy by means of purchasing even the high-yielding junk bonds are likely to create significant pent-up demand, fueling a quick recovery.
Finally, positive developments on novel coronavirus immunization bolstered investors' sentiment. According to Fundstrat, at present, there are 10 vaccines in clinical evaluation and 114 in preclinical evaluation for the treatment of COVID-19.
U.S. Economy is Bottoming Out
Market's worst is behind us as the U.S. economy is gradually bottoming out. This is evident from recently released economic data. Initial jobless claims, though high till the last-reported week, has been declining systematically over the past nine weeks. Notably, continuing claims (those who have been collecting for at least two weeks) dropped by 3.86 million for the week ended May 23.
Moreover, better-than-expected consumer confidence in May, surging home builders' sentiment, growing mortgage applications to purchase a home this month, rise in new home sales in April and narrower-than-expected fall in orders of durable goods last month are clearly showing that the U.S. economy is coming out of the woods of the deadly coronavirus.
Our Top Picks
At this stage, it will be prudent to invest in momentum stocks with a favorable Zacks Rank. Momentum investing calls for continued appraisal of stocks, which ensures that an investor does not pick a beaten-down name and overlook a thriving one. Momentum investors buy high on the anticipation that the stock will only ascend in the short to intermediate term.
We have narrowed down our search to five momentum stocks that rallied in May. Each of our picks sports a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A.
The chart below shows the price performance of our five picks in the past month.
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Chegg Inc. (CHGG) operates a direct-to-student learning platform from high school to college with tools designed to help them pass their class and save money on required material. The company has an expected earnings growth rate of 33% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 15.2% over the last 30 days. The stock price has soared 46.9% in the past month.
Bandwidth Inc. (BAND) operates as a cloud-based software-powered communications platform-as-a-service (CPaaS) provider in the United States. It operates in two segments, CPaaS and Other. The company has an expected earnings growth rate of 108.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 120% over the past 30 days. The stock has jumped 33.4% in the past month.
Wayfair Inc. (W) is one of the world's leading online sellers of home goods products, consisting of furniture and home decor. The company has an expected earnings growth rate of 39% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 44.3% over the past seven days. The stock has climbed 31.2% in the past month.
Quidel Corp. (QDEL) develops, manufactures, and markets diagnostic testing solutions for applications primarily in infectious diseases, cardiology and gastrointestinal diseases worldwide. The company has an expected earnings growth rate of 131% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 124.8% over the last 30 days. The stock price has surged 24.6% in the past month.
Atlas Air Worldwide Holdings Inc. (AAWW) provides outsourced aircraft and aviation operating services. It operates through three segments: ACMI, Charter and Dry Leasing. The company has an expected earnings growth rate of 61.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 27.1% over the last 30 days. The stock price has advanced 21.8% in the past month.
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