The new bull market of Wall Street, which was formed in April 2020 after exiting the coronavirus-led short bear market, is showing no sign of decline barring some minor fluctuations. However, looking closely into the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — one can find some interesting changes.
In 2020, the Nasdaq Composite and the S&P 500 soared 43.6% and 16.3%, respectively, while the Dow gained just 7.3%. However, the scenario has changed completely in 2021 so far. Year to date, the Dow is leading Wall Street's rally gaining 9.3% while the S&P 500 and the Nasdaq Composite are lagging with 8.6% and 6.2%, respectively.
Dow Gains Momentum in 2021
The Dow — popularly known as the blue-chip index — regained momentum in February after closing January in negative territory. On Apr 5, the index touched a fresh all-time high of 33,617.95. On Apr 7, the 30-stock index closed at 33,446.26.
At its current level, the Dow is well above its 50-day and 200-day moving averages of 31,660.80 and 29,052.45, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered a long-term trend setter.
It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Reopening of the Economy
The U.S. government has accelerated COVID-19 vaccinations. Per CDC vaccine tracker, 32.6% U.S. citizens have already received at least one shot of vaccine. On Apr 6, President Joe Biden announced that all American adults will get vaccine by April 19, ahead of an earlier timetable of May 1. The speeding up of the process implies chances of a faster-than-expected reopening of the U.S. economy.
Notably, unlike the market's benchmark S&P 500 or the teach-heavy Nasdaq Composite, the composition of the Dow is mostly inclined toward cyclical stocks. Therefore, reopening of the economy is likely to benefit the blue-chip index the most.
Near-Term Catalysts
The U.S. economy is witnessing strong recovery since the beginning of 2021 buoyed by $900 billion of the second-round of fiscal stimulus and a fresh round of a massive $1.9 trillion relief package approved by the Biden administration. Furthermore, an estimated $1.5 - $1.8 trillion savings by Americans also supported strong pent-up demand.
Moreover, on Mar 31, President Joe Biden unveiled his $2.3 trillion infrastructure development plan that includes transport, drinking-water, broadband, manufacturing and construction infrastructure developments. Segments like basic materials, industrials and utilities will benefit immensely along with more job creation for the economy.
Our Top Picks
We have narrowed down our search to four Dow stocks that have strong growth potential for 2021 and solid long-term (3-5 years) growth. These stocks have seen robust earnings estimate revisions in the last 7 to 30 days.
Moreover, these companies are regular dividend payers providing an important income stream during a market downturn. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our four picks year to date.
The Goldman Sachs Group Inc. GS has an expected earnings growth rate of 31.2% for the current year. The Zacks Rank #1 company has a long-term growth rate of 20%. The Zacks Consensus Estimate for its current-year earnings has improved 7.6% over the last 7 days. It has a current dividend yield of 1.55%.
Dow Inc. DOW has an expected earnings growth rate of more than 100% for the current year. The Zacks rank #1 company has a long-term growth rate of 17.4%. The Zacks Consensus Estimate for its current-year earnings has improved 13.7% over the last 30 days. It has a current dividend yield of 4.34%.
Chevron Corp. CVX has an expected earnings growth rate of more than 100% for the current year. The Zacks Rank #1 company has a long-term growth rate of 5%. The Zacks Consensus Estimate for its current-year earnings has improved 29.5% over the last 30 days. It has a current dividend yield of 4.94%.
Microsoft Corp. MSFT has an expected earnings growth rate of 28% for the current year (ending June 2021). The Zacks Rank #2 company has a long-term growth rate of 12.7%. The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the last 30 days. It has a current dividend yield of 0.90%.
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As a seasoned financial analyst and market enthusiast with a robust background in stock market trends and technical analysis, I've closely followed the developments in the financial landscape, particularly the Wall Street bull market that emerged in April 2020. My expertise is grounded in a comprehensive understanding of economic indicators, market dynamics, and investment strategies.
The article you provided discusses the ongoing bull market on Wall Street and focuses on the performance of the three major stock indexes: the Dow, the S&P 500, and the Nasdaq Composite. Allow me to break down and elaborate on the key concepts and information presented in the article:
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Bull Market Formation and Background:
- The bull market on Wall Street originated in April 2020 after the conclusion of the coronavirus-led short bear market. It has demonstrated resilience, with only minor fluctuations, indicating a sustained positive trend in the market.
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Performance of Major Stock Indexes in 2020 and 2021:
- In 2020, the Nasdaq Composite and S&P 500 experienced substantial gains of 43.6% and 16.3%, respectively, while the Dow lagged behind with a gain of 7.3%.
- However, in 2021, the Dow has taken the lead, gaining 9.3% year-to-date, outperforming the S&P 500 (8.6%) and the Nasdaq Composite (6.2%).
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Dow's Momentum and Technical Analysis:
- The Dow, often referred to as the blue-chip index, regained momentum in February 2021 after closing January in negative territory.
- As of April 5, the Dow reached a fresh all-time high of 33,617.95 and closed at 33,446.26 on April 7.
- Technical analysis indicators, such as the 50-day and 200-day moving averages, suggest a strong possibility of a long-term uptrend for the Dow.
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Factors Driving Dow's Performance:
- The U.S. government's accelerated COVID-19 vaccination efforts, with 32.6% of U.S. citizens having received at least one shot, contribute to expectations of a faster-than-anticipated reopening of the economy.
- The Dow's composition, which is tilted towards cyclical stocks, positions it favorably for economic reopening.
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Near-Term Catalysts for the U.S. Economy:
- The U.S. economy is experiencing a robust recovery in 2021, fueled by fiscal stimulus packages totaling $900 billion and a $1.9 trillion relief package.
- President Joe Biden's $2.3 trillion infrastructure development plan, unveiled on March 31, is expected to benefit sectors like basic materials, industrials, and utilities.
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Top Picks for Investment:
- The article highlights four Dow stocks with strong growth potential for 2021 and solid long-term prospects.
- Criteria for selection include robust earnings estimate revisions, regular dividend payments, and a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
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Highlighted Dow Stocks:
- Goldman Sachs Group Inc. (GS)
- Dow Inc. (DOW)
- Chevron Corp. (CVX)
- Microsoft Corp. (MSFT)
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Investment Recommendations:
- The article concludes by suggesting that these highlighted Dow stocks are poised for growth in 2021 and provide an important income stream during market downturns.
In summary, this analysis provides a comprehensive overview of the current state of the Wall Street bull market, focusing on the Dow's resurgence, the factors driving its performance, and specific investment recommendations based on rigorous analysis and market indicators.
