President-elect Donald Trump has proposed a raft of fiscal-stimulus measures, which has pushed the S&P 500 to almost an all-time high in November. OPEC’s decision to cut oil production for the first time since 2008 also added to the euphoria, while holiday season sales gained ground.
Amid all these, solid economic data from consumer confidence level, housing starts to GDP bolstered investors’ sentiment. Third quarter earnings results too came in good, which calls for investing in stocks that have not only outperformed the broader S&P 500 index, but are also poised to gain in the near term on solid fundamentals.
S&P 500 Trades Near All-Time High
U.S. stocks made big gains in November, with the S&P 500 scaling to almost an all-time high. The benchmark index advanced 72.66 points or 3.4% last month to settle at 2,198.81, driven by expectations of market-friendly policies from Trump. In fact, the broad-stock benchmark S&P 500 index has climbed 3.8% since the election.
Trump’s policies particularly had a positive impact on financial, healthcare and industrial companies. The Financial Select Sector SPDR ETF (XLF), Health Care Select Sector SPDR (XLV) and Industrial Select Sector SPDR (XLI) gained 12.3%, 1.4% and 9.2%, respectively, during the month.
Giant investment bank Goldman Sachs GS scored a 23% climb while J.P. Morgan Chase & Co JPM was up about 15.8%. On the healthcare front, Merck & Co. Inc. MRK and Pfizer Inc. PFE gained 4.2% and 1.4%, respectively, while industrial behemoth Caterpillar Inc. CAT advanced 14.5% in November.
Investors turned to banks as regulatory burden is likely to ease under Trump presidency. One such change will be the raising of the minimum asset threshold for banking behemoths to $250 billion from $50 billion, which will lend more flexibility, boost valuations, strengthen consolidation and increase lending. Trump, in the meantime, views the Dodd-Frank regulatory overhaul as a harsh measure, especially, on smaller banks. Trump has also called for repealing parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility (read more: 5 Stocks to Buy as Trump Raises Hopes for Banking Sector).
Meanwhile, Trump remained silent on the drug pricing debate, which could mean fewer headwinds for the industry. He also announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare. Trump’s business tax plan, in the meanwhile, should benefit biotech companies. He plans to trim business tax rate to 15% from 35% (read more: 5 Top Biotech Stocks to Buy on Trump Victory).
Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. He said that he will support more spending on transportation and telecommunications infrastructure, clean water and electricity transmission in order to accelerate economic growth. He is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects (read more: 4 Stocks to Gain From Trump's Infrastructure Push).
When it comes to defense spending, Trump has promised greater outlays and troop expansion (read more: 4 Defense Stocks to Buy on Trump Victory).
Crude Oil Joins the Trump Party
U.S. oil stocks are also soaring after OPEC’s production cut decision. OPEC overcame disagreements between the group’s three largest producers, Saudi Arabia, Iran and Iraq by agreeing to trim its output by about 1.2 million barrels a day by Jan 2017.
According to the Wall Street Journal, a production cut of this size could “push oil supplies below demand levels sooner than expected”. WTI and Brent crude surged 8.52% and 8.10% to $49.44 per barrel and $46.38 a barrel, respectively. Surge in oil prices in due course helped the Energy Select Sector SPDR (XLE) increase 7.3% last month (read more: OPEC Has Finally Agreed to Cut Output, Sending Oil Up 7%).
Holiday Season Sales Surge
Holiday spending, in the meantime, rose 9% during Thanksgiving and Black Friday combined, compared with the same two-day period last year, according to First Data. As per Adobe Digital Insights, Cyber Monday online sales increased 12.1% this year compared to 2015, buoyed by massive growth in mobile traffic and sales (read more: 4 Top eCommerce Stocks for the Holiday Season).
Online sales have also been surpassing traditional retail sales for quiet sometime now. Lower-priced goods, free shipping and product availability are the primary reasons as to why consumers are more likely to opt for shopping online during this holiday season. Best of all, customers can place orders from the comfort of their homes or at work (read more: 5 Stocks that Make Great Buys Ahead of Cyber Monday).
Slew of Upbeat Economic Data
Better-than-expected economic reports did play a significant role in propelling stocks higher. Consumer confidence rebounded strongly in November to hit a nine-year high. According to the Conference Board, Consumer Confidence Index increased from October to 107.1 in November, its highest since Jul 2007 (read more: 4 Retail Stocks to Buy on 9-Year High Consumer Confidence).
Housing starts touched a nine-year high in October as builders ramped up construction of both single and multi-family homes. Steady increase in hiring and healthier finances have made home purchases affordable, which eventually boosted construction (read more: 5 Top Construction Picks as Housing Starts Hit 9-Year High).
In fact, the U.S. economy expanded faster than expected in the third quarter. According to the Commerce Department’s second estimate, GDP increased 3.2% in the third quarter. This is a considerable improvement over the advance estimate of 2.9%the expected pace of 3%. Consumer expenditure, the powerhouse of GDP growth, increased 2.8% during the third quarter (read more: 6 Stocks to Buy on Strong GDP Growth).
5 Best S&P 500 Stocks of November
Thanks to Trump’s startling victory, the S&P 500 received enough stimulus to move north in November. A rally in oil prices and holiday season sales along with a raft of encouraging economic data added to the upward trend. Lest we forget, total earnings of 476 S&P 500 members reported in the third quarter were up 4% from the same period last year on 2.6% higher revenues, with 73.1% beating EPS estimates and 55.5% surpassing revenue expectations (read more: Making Sense of Retail's Q3 Results).
Let us now take a look at S&P 500 stocks that have not only gained immensely last month but have also convincingly beaten the broader index. Such stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and possess a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Micron Technology, Inc. MU: This provider of semiconductor systems has advanced 13.8% last month. Micron Technology has a Zacks Rank #2 and a VGM score of ‘B’. The Zacks Consensus Estimate for its current year earnings surged 81.3% over the last 60 days.
Leucadia National Corporation LUK: This diversified holding company has increased 17.9% last month. Leucadia Nationalsports a Zacks Rank #1 and a VGM score of ‘B’. The Zacks Consensus Estimate for its current year earnings rose 69.2% over the last 60 days.
Nordstrom, Inc. JWN: This fashion specialty retailer has increased 7.5% last month. Nordstrom has a Zacks Rank #2 and a VGM score of ‘A’. The Zacks Consensus Estimate for its current year earnings advanced 8.9% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lam Research Corporation LRCX: This manufacturer of semiconductor processing systems gained 9.5% last month. Lam Researchhas a Zacks Rank #2 and a VGM score of ‘A’. The Zacks Consensus Estimate for its current year earnings jumped 18.6% over the last 60 days.
Best Buy Co., Inc. BBY: This retailer of technology products, services, and solutions has rallied 9.5% last month. Best Buy sports a Zacks Rank #1 and a VGM score of ‘A’. The Zacks Consensus Estimate for its current year earnings advanced 7.6% over the last 60 days.
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