New Zealand markets closed
  • NZX 50

    +118.40 (+1.06%)

    +0.0035 (+0.58%)

    +0.0027 (+0.47%)

    +27.20 (+0.38%)
  • ASX 200

    +23.80 (+0.34%)
  • OIL

    -0.94 (-1.02%)
  • GOLD

    -14.00 (-0.75%)

    +12.48 (+0.08%)
  • FTSE

    +6.23 (+0.08%)
  • Dow Jones

    -158.84 (-0.47%)
  • DAX

    +63.08 (+0.41%)
  • Hang Seng

    +436.63 (+2.51%)
  • NIKKEI 225

    -14.90 (-0.05%)

    +0.5850 (+0.66%)

Bearish Headwinds Have Evolved to Bullish Tailwinds: This Industry Soars

The bearish headwinds that plagued the stock market last year have now developed into bullish tailwinds.

This morning, the Bureau of Labor Statistics reported that the headline inflation rate dipped to 4.9% in April, below the 5% median projection. The yearly figure rose at the slowest rate in more than two years. It marked the tenth consecutive decline in the annual rate of inflation.

On a monthly basis, the consumer price index (CPI) rose 0.4%, matching forecasts. Core CPI, which strips out the more volatile food and energy components, was also in line with estimates, up 0.4% for the month and 5.5% on the year.

The slightly cool CPI data strengthened the case for a Fed pause at the next meeting. The outlook for potentially lower rates has been pressuring bond yields along with the U.S. dollar, providing another set of tailwinds that are bullish for equities.

And while volatility was prevalent during the bear market, it’s clear that investors are now expecting more narrow price ranges ahead. Lower volatility normally coincides with a rising stock market. The VIX index, often referred to as the “fear gauge”, recently hit a 52-week low. The VIX generates a 30-day forward projection of volatility and is derived from the prices of S&P 500 index options.

Sell in May?

We’ve all heard the phrase, but does the data back it up? It’s true that since 1950, the May through October period has provided the lowest average return out of any six-month period. But investors may want to think twice before selling out of positions.

Over the past decade, these six months have been lower only twice, and are up nearly 5% on average. The month of May has been up nine times out of ten, with a median gain of 1.3%.

What’s been leading on the way back up? One of the pockets of the market that has been outperforming lately is pharmaceuticals. The Zacks Large Cap Pharmaceuticals industry is currently ranked in the top 26% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months, just as it has recently:

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Despite the impressive move, stocks in the Zacks Large Cap Pharmaceuticals industry remain relatively undervalued:

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Quantitative research studies have shown that approximately half of a stock’s future price movement can be attributed to its industry group. By focusing on stocks within the top industries, we can dramatically improve our odds of success. Let’s take a deeper look at a leading stock within this highly-rated industry.

Eli Lilly & Co. (LLY)

Eli Lilly discovers, develops, and markets human pharmaceuticals worldwide. The company’s array of products serves a vast number of therapeutic areas including diabetes, neuroscience, oncology and immunology, all of which are high growth areas that represent significant commercial potential. LLY boasts a dependable pipeline and is one of the world’s largest pharmaceutical companies.

Eli Lilly has exceeded earnings estimates in two of the last three quarters. The pharmaceutical giant boasts a market capitalization of nearly $407 billion and pays a $4.52 (1.06%) dividend. LLY Shares have outperformed this year, advancing nearly 19%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Analysts covering LLY have raised their future earnings estimates across the board. Looking at 2023 as a whole, analysts have raised their EPS estimates by 2.71% in the past 60 days. The Zacks Consensus Estimate now stands at $8.72/share, reflecting potential growth of 9.8% relative to last year.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

In an uncertain economic environment, LLY has shown relatively little volatility while rewarding shareholders with substantial gains. Make sure to keep an eye on this leading stock (as well as the Large Cap Pharmaceuticals industry in general) as headwinds from last year evolve into bullish tailwinds.

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

Eli Lilly and Company (LLY) : Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research