Investors look to adopt an investment strategy to garner above-market returns. However, if the company grows at the market’s projected growth rate, the stock’s performance will be in line with market returns.
Thus, for better gains compared to the market, investors need to focus on stocks that have the potential to record strong earnings growth going forward.
Over the last month, both the S&P 500 and the Nasdaq Composite Index have gained over 5% each, buoyed by the following underlying factors.
Rebound in Oil Prices
Crude oil, which forms a major indicator of global economic growth, faced a major setback when the commodity touched a 13-year low of $27 a barrel in Feb 2016. However, remarks by major oil producers hinting at an impending cut on crude production, triggered significant recovery. Over the last one month, WTI crude rallied to $38.46 a barrel, marking a gain of nearly 42%.
Moreover, the EIA projected a decline in oil production across the seven major shale-drilling regions in the U.S. for the sixth straight month in April. Also, the EIA believes that the production will drop by 106,000 bpd to 4.87 million bpd in April from March. In addition, the Organization of Petroleum Exporting Countries or OPEC reportedly decreased output by 79,000 barrels to 33.06 million bpd in Feb 2016.
Upbeat Domestic Numbers
Upward revision in the U.S. GDP growth estimate by 1% coupled with 242,000 job additions in Feb 2016, handily outpacing the consensus estimate of 194,000, as per the Bureau of Labor Statistics (BLS) strongly support the bullish sentiment of investors. Moreover, the unemployment rate in the month of February remained unchanged at 4.9%.
Also, the ISM Manufacturing Index increased to 49.5% in February from 48.2% in January, higher than the consensus estimate of 48.6 despite reflecting a contraction in manufacturing activity and 1.6% increase in factory orders.
Meanwhile, Core Personal consumption expenditures (PCE) grew 0.3% while personal income and spending inched up 0.5%. Hence, we believe that such strong domestic economic data will continue to act as strong catalysts for the U.S. stock market.
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