U.S. stock markets ended 2023 on a strong note after a highly disappointing 2022. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were up 13.7%, 23.9% and 43.4%, respectively.
However, Wall Street has started 2024 on a bleak note. In the first week of 2024, the Dow, the S&P 500 and the Nasdaq Composite — fell 0.6%, 1.5% and 3.3%, respectively. Market participants remained concerned about the timing of the first rate cut an stretched valuations in U.S. stock markets.
U.S. Manufacturing a Services PMI Decline
The Institute of Supply Management (ISM) reported that the manufacturing Index for December came in at 47.4, marginally ahead of the consensus estimate of 47.2. The reading for November was 46.7. Any reading below 50 indicates a contraction in manufacturing activities.
December marked the 14th consecutive month of manufacturing contraction after 28th months of expansion. The new orders Index remained in contraction territory at 47.1, lower than November’s reading of 48.3.
The ISM also reported that the services Index for December came in at 50.6, reflecting the 12th consecutive months of expansion. Any reading above 50 indicates an expansion in services activities. However, the metric was lower than November’s data of 52.7 and the consensus estimate of 52.5.
The sub index for new orders came in at 52.8 in December compared with 55.5 in November. The sub index for employment contracted to 43.3 in December from 50.7 in November. December’s data was the lowest since May 2020.
Labor Market Remains Resilient
The Department of Labor reported that the U.S. economy added 216,000 jobs in December, beating the consensus estimate of 170,000. However, the metric for November was revised downward to 173,000 from 199,000.
The unemployment rate in December was 3.7%, flat month over month but below the consensus estimate of 3.8%. The average hourly wage rate increased 0.4% in December, flat with November but higher than the consensus estimate of 0.3%. Year over year, the wage rate increased 4.1% in December, beating the consensus estimate of 3.9%.
Fed to Initiate Interest Rate Cut in 2024
The above two examples have shown that the U.S. economy is cooling without any sign of near-term recession. The latest estimate of the Atlanta Fed GDPNow has shown that the economy is likely to grow at a rate of 2.5%, higher than the 2% projected earlier.
Moreover, in the December FOMC meeting, the Fed gave a clear indication that the current interest rate hike cycle has finally ended. The December FOMC meeting dot plot showed that, on average, Fed officials are expecting at least three rate cuts of 25 basis points each in 2024. This brightens the chance of a much-hyped soft-landing of the U.S. economy.
Our Top Picks
We have narrowed our search to five growth stocks that have solid upside left for 2024. These stocks have witnessed positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Splunk Inc. SPLK is witnessing significant customer additions and multiple project wins in the public and private sectors driven by its enterprise scale and unified product portfolio. SPLK teamed up with Microsoft to enable customers to migrate, modernize and enhance their business environment with comprehensive cloud and hybrid visibility on a large scale.
Splunk is committed to enhancing its core platform and premium products with advanced AI capabilities. SPLK AI encompasses a range of AI-powered solutions that seamlessly blend automation with human input.
Splunk has an expected revenue and earnings growth rate of 11.1% and 6.8%, respectively, for next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the past 60 days.
Casey's General Stores Inc. CASY reported impressive results for second-quarter fiscal 2024. CASY’s stellar performance in prepared food and grocery categories helped post a 6.2% jump in inside sales and 2.9% growth in inside same-store sales in the quarter. Its business operating model, omnichannel capabilities, enhanced customer reach and private-label offerings reinforce its position in the industry.
Casey's price and product optimization strategies, increased penetration of private brands and digital engagements are also commendable. CASY’s inventory management, technology advancements and data analytics position it well for future growth.
Casey's General Stores has an expected revenue and earnings growth rate of 0.3% and 7.4%, respectively, for the current year (ending April 2024). The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 30 days.
Meta Platforms Inc. META is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
However, as developed regions mature, Meta Platforms has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. Of all places, India deserves a-special mention in terms of user growth. The world’s second-largest populated country offers tremendous potential for META. With China off the radar, India can prove to be a terrific growth engine for Meta.
Meta Platforms has an expected revenue and earnings growth rate of 13.4% and 22.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Lennox International Inc. LII is a global leader in the heating, air conditioning, and refrigeration markets. It is a leading global provider of climate control solutions. LII designs, manufactures and markets a broad range of products for the heating, ventilation, air conditioning and refrigeration markets.
LII’s products are sold under brand names that include Lennox, Armstrong Air, Bohn, Larkin, Heatcraft and others. LII’s furnaces, heat pumps, air conditioners, pre-fabricated fireplaces and related products are available in a variety of designs, efficiency levels and price points that provide an extensive line of comfort systems.
Lennox International has an expected revenue and earnings growth rate of 6.3% and 10.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
Spotify Technology S.A. SPOT provides audio streaming services worldwide. SPOT operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices. SPOT also offers sales, distribution and marketing, contract research and development, and customer support services.
Spotify Technology has an expected revenue and earnings growth rate of 17.3% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 30 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lennox International, Inc. (LII) : Free Stock Analysis Report
Splunk Inc. (SPLK) : Free Stock Analysis Report
Casey's General Stores, Inc. (CASY) : Free Stock Analysis Report
Spotify Technology (SPOT) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
