The month of October salvaged the crestfallen markets as the major benchmarks gave their best performance in the month in four years. The stocks buoyed up after taking a beating the previous two months in the wake of the China gloom, global growth weakness, the biotech sell-off and of course, the oil carnage. But the Dow and Nasdaq posted solid gains in October, and all the major S&P 500 sectors finished in the positive.
October Recovery
In October, the S&P 500, the Dow and the Nasdaq soared 8.1%, 8.6% and 9.2%, respectively. Along with the Fed’s indication of a still possible a December rate hike, China’s move to cut borrowing rates and the European Central Bank’s cues of an extended quantitative easing program perked up the markets last month. Let’s dig into the details.
Boost from Central Banks
The People's Bank of China (PBOC) reduced the key rates for the sixth time in less than a year to boost the economy, which is on the verge of witnessing the lowest annual growth rate of below 7% in 25 years. Also, the European Central Bank (ECB) President Mario Draghi indicated that the central bank could expand its quantitative easing measures at its December meeting. Draghi also said that the Governing Council is willing to utilize all possible easing measures, including a further cut to the deposit rate.
Back home, though the Fed kept the key interest rates unchanged in its October meeting, there were indications that a December rate hike is still possible.
Earnings Impact
The third-quarter earnings season was the focus of last month. Though the picture coming out of the third-quarter earnings reports remained on the weaker side, sectors including technology and finance outperformed. Total earnings from 341 S&P 500 members who posted results through Oct 30 were down 1.0% on 4.9% lower revenues, with 71.3% beating EPS estimates and only 42.7% surpassing top-line expectations.
However, encouraging earnings results from major tech companies including Apple Inc. AAPL helped the technology sector to register year-on-year growth of 8.9% and 5.5% in earnings and revenues, respectively. Also, strong results from banking behemoths including Bank of America Corp. BAC and Citigroup Inc. C boosted that sector’s earnings by 7.5% from the year-ago period. However, revenues in banking sector witnessed a year-over-year decline of 1.3%.
Energy & Healthcare Rebound
Meanwhile, the gain in energy stocks was one of the key drivers in October following a strong rebound in oil prices. Prices of West Texas Intermediate (WTI) crude oil and Brent crude oil gained 4% and 2%, respectively, last month. Persistent decline in the U.S. oil rig count and a smaller-than-expected rise in the U.S. crude inventories last week mainly backed the oil price recovery. The Energy Select Sector SPDR (XLE) – a broader index of S&P 500 energy companies – surged nearly 11.2% over the prior month.
Another sector that witnessed a strong rebound in October is healthcare. After heavy sell-off in August and September, healthcare stocks posted solid gains last months. Better-than-expected earnings from companies including UnitedHealth Group Inc. UNH, Gilead Sciences Inc. GILD and Amgen Inc AMGN were the main drivers of the rebound. The Health Care Select Sector SPDR (XLV) jumped 7.8% last month.
10 Stocks that Gained Over 10% in October
Strong gains in October helped major benchmarks to offset some of the losses they incurred in August and September that pushed them to the correction territory. In this context, we have identified 10 favorably placed stocks that moved with this positive trend and registered strong gains in October. These stocks carry a Zacks Rank #1 or #2 and gained more than 10% last month.
Banco Macro S.A. BMA is a leading bank in Argentina that provides products and services related to banking throughout the country.
Banco Macro holds a Zacks Rank #1 (Strong Buy) and returned 60.8% over the past one month.
American Railcar Industries, Inc. ARII is a leading North American manufacturer of covered hopper and tank railcars.
American Railcar holds a Zacks Rank #2 (Buy) and returned 59.6% in the trailing one-month period.
Clayton Williams Energy, Inc. CWEI is an independent oil and gas company engaged in the exploration, development and production of oil and natural gas.
CWEI holds a Zacks Rank #2 (Buy) and returned 53.5% over the past one month.
Cray Inc. CRAY designs, builds and sells high-performance vector processor and general-purpose parallel computer systems.
Cray holds a Zacks Rank #2 (Buy) and returned 49.6% over the past one-month period.
Mistras Group, Inc. MG is a global provider of technology-enabled, non-destructive testing solutions.
Mistras holds a Zacks Rank #1 (Strong Buy) and returned 47.2% over the past month.
Netgear Inc. NTGR designs technologically advanced, branded networking products that address the specific needs of small business and home users.
Netgear holds a Zacks Rank #1 (Strong Buy) and returned 41.9% over the past one month.
Hawaiian Holdings Inc. HA, a holding company of Hawaiian Airlines, is engaged primarily in the scheduled transportation of passengers, cargo and mail.
Hawaiian Holdings holds a Zacks Rank #1 (Strong Buy) and returned 40.6% over the past one–month period.
Gibraltar Industries, Inc. ROCK is a leading manufacturer, processor, and distributor of metals and other engineered materials for the building products and others.
ROCK holds a Zacks Rank #2 (Buy) and returned 38% over the past month.
New Oriental Education & Technology Group Inc. EDU is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence.
EDU holds a Zacks Rank #1 (Strong Buy) and returned 36.1% over the past one month.
Albany International Corp. AIN designs, manufactures and markets textile and materials processing products throughout the globe.
AIN holds a Zacks Rank #1 (Strong Buy) and returned 31.3% in the past one-month frame.
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