On February 9, the S&P 500 Index achieved a historic milestone, closing above the crucial 5,000 mark at 5,026.61. This was the first time in history that the index crossed this significant technical barrier, after briefly touching it the previous day. The S&P 500 had a strong finish in 2023, rallying 23.9% after a disappointing 2022. In the early months of 2024, the benchmark has maintained its momentum, climbing 6% year to date. Last week, the index advanced 1.4%, marking its fifth consecutive winning week and its 14th positive week in 15.
Robust Economic Data
The U.S. economy has shown robust fundamentals, with the Department of Commerce reporting a 3.3% growth in the fourth quarter of 2023—well above the consensus estimate of 2%. The GDP rose 2.5% in 2023 compared to 1.9% in 2022, exceeding initial estimates. Positive economic indicators such as solid nonfarm payrolls in January, strong consumer spending in December, and an improved manufacturing index in January have alleviated concerns about an imminent recession.
Additionally, core PCE inflation, the Fed’s preferred gauge, increased 0.2% month over month and 2.9% annually in December, representing the slowest annual rate of increase since March 2021. Both consumer confidence and consumer sentiment indexes saw significant upticks in January.
Strong Q4 2023 Earnings Data
As of February 9, 338 companies on the S&P 500 Index have reported their financial numbers. Total earnings for these companies are up 5.5% from the same period last year on 3.7% higher revenues. A substantial 80.5% of these companies beat EPS estimates, while 65% exceeded revenue estimates.
Looking ahead, total earnings of the S&P 500 Index in the fourth quarter of 2023 are expected to increase by 4.9% on revenues 3.1% higher. This follows a 3.8% earnings growth on 2% higher revenues in the third quarter and three consecutive quarters of declining earnings prior to that.
High Expectations for Rate Cut
Following the January FOMC meeting, the Fed hinted that a much-anticipated cut in the benchmark lending rate in March was unlikely. The central bank had paused rate hikes in July 2023, maintaining rates within the 5.25-5.5% range.
Despite the Fed’s cautious signal regarding rate cuts, market participants are optimistic about potential rate cuts in 2024. The CME FedWatch tool currently indicates a 60.7% probability of a 25 basis-point rate cut in May, with an expectation of four additional rate cuts of the same magnitude throughout the year.
Top Picks for Investors
Identifying five U.S. corporate giants in the S&P 500 Index with a market capital exceeding $50 billion, we found stocks demonstrating strong growth potential for 2024, alongside positive earnings estimate revisions in the last 30 days. Each of our picks also boasts a Zacks Rank #1 (Strong Buy). You can refer to the complete list of today’s Zacks #1 Rank stocks for more insights.
A visual representation of the price performance of these top picks over the past three months can be seen in the chart below.
Image Source: Zacks Investment Research
Amazon.com Inc.: AMZN continues to gain momentum, fueled by strong Prime services, ultrafast delivery, and a robust content portfolio. The company’s deepening rapport with third-party sellers is a significant positive, along with a strong adoption rate of AWS, boosting its cloud dominance.
Amazon is expected to see a revenue and earnings growth rate of 11.4% and 39%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings improved by 0.2% over the last week.
Meta Platforms Inc.: META is experiencing steady user growth across all regions, particularly in the Asia Pacific. The company has seen increased engagement in offerings such as Instagram, WhatsApp, Messenger, and Facebook. Leveraging AI to recommend Reels content has driven traffic on Instagram and Facebook.
META is expected to achieve a revenue and earnings growth rate of 17.4% and 31.9%, respectively, for the current year, with the Zacks Consensus Estimate for current-year earnings improving by 0.6% over the last week.
Netflix Inc.: NFLX added 13.12 million paid subscribers globally in the fourth quarter of 2023, with a 1% increase in average revenue per subscription. Contributing to this growth are the company’s paid subscription-sharing offering (as part of its password-sharing crackdown), recent pricing changes, and its overall business strength.
Netflix is expected to maintain its dominance in the streaming space, bolstered by diversified content production and distribution, including localized and foreign-language content. The company has an anticipated revenue and earnings growth rate of 14.3% and 40.7%, respectively, with the Zacks Consensus Estimate for current-year earnings improving by 5.9% over the last 30 days.
The Progressive Corp.: PGR is experiencing growth driven by higher premiums, a compelling product portfolio, and leadership positions in both Vehicle and Property businesses. The company’s focus on becoming a comprehensive insurance destination, particularly catering to customers seeking home and auto insurance combinations, bodes well for its future.
The Progressive Corp. has an expected revenue and earnings growth rate of 14.7% and 40.6%, respectively, for the current year, with the Zacks Consensus Estimate for current-year earnings improving by 3.4% over the last 30 days.
HCA Healthcare Inc.: HCA’s revenues have been on the rise and continue to do so.