U.S. Household Net Worth Hits Record High in Q1: 5 Picks
The net worth of American households reached a fresh all-time high in the first quarter of 2021 supported by a faster-than-expected recovery of the U.S. economy from the pandemic-led devastations. On Jun 10, Fed reported that household net worth surged $6.7 trillion or 3.8% in first-quarter 2021 from fourth-quarter 2020 to reach $136.9 trillion.
Year over year, the net worth of Americans jumped 23.6% as first-quarter 2020 was partially affected by the global outbreak of the deadly coronavirus. The value of equities increased nearly $3.2 trillion while the value of real estate held by households rose around $1 trillion.
The U.S. economy grew 6.4% in first-quarter 2021 buoyed by a robust economic recovery. A sharp reduction in new coronavirus cases, nationwide COVID-19 vaccination and the gradual removal of economic and other day-to-day restrictions have resulted in a faster-than-expected reopening of the U.S. economy.
Moreover, two new trenches of fiscal stimulus — $900 billion in late December and $1.9 trillion in March — and the continuation of easy monetary policies by the Fed helped in the U.S. economy's recovery and enhanced the household net worth.
Reasons for Surging Household Net Worth
The U.S. stock market ended the first quarter of 2021 on a high note. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 7.8%, 5.8% and 2.8%, respectively. Moreover, the small-cap specific Russell 2000 jumped 12.4% and the mid-cap centric S&P 400 climbed 13.1%. All these reflect a broad-based rally in first-quarter 2021.
On the other hand, the housing market has remained robust primarily due to record-low mortgage rates. The Fed adopted an ultra-dovish monetary stance and reduced the benchmark interest rate to as low as 0-0.25% in March. The low rate of market interest rate significantly reduced mortgage rates, enabling consumers to buy houses. The strong demand has strengthened the real estate sector.
Momentum Likely to Continue
The pandemic-led devastations of the U.S. economy were not as severe as estimated 16 months ago. U.S. household net worth climbed 6.8%, 3.2%, 5.6% and 3.8%, respectively, in the second, third and fourth quarters of 2020 and first-quarter 2021, sequentially, after sliding 5.6% in first-quarter 2020. Unprecedented fiscal and monetary support helped in reviving household net worth.
Meanwhile, per several analysts' projections, the U.S. economy is expected to grow at 6.5% on average in 2021. Per our projections on Jun 11, total earnings of the market's benchmark — the S&P 500 Index — are expected to climb 34.8% year over year on 10.5% higher revenues in 2021. In 2022, total earnings of the S&P Index are forecast to grow 11.2% year over year on 6.4% higher revenues.
Moreover, the U.S. stock markets maintained their northbound journey in first-quarter 2021 after an astonishing 2020 despite being coronavirus-ridden. On Jun 11, the CBOE VIX — popularly known as the best fear-gauge of Wall Street — closed at 15.65, its first closing below the technical barrier of 16 for the first time since Feb 20, 2020.
At its current level of 15.65, the CBOE VIX is lower than its 50-day moving average (short-term trend setter) of 18.28 and the 200-day moving average (long-term trend setter) of 23.23. It is widely recognized in the technical analysis space that whenever the 50-day moving average line falls below the 200-day moving average line, a long-term downtrend for the volatility index becomes a strong possibility. This reflects a significant upside for the equities.
Our Top Picks
We have narrowed down our search to five U.S. corporate behemoths (market capital > $50 billion) as these companies have a well-established business model and a powerful brand value.
These stocks have popped more than 15% in the past three months with more upside potential for 2021 and have witnessed solid earnings estimation revisions in the last 30 to 60 days. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy). 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
NVIDIA Corp. NVDA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to AI- based solutions that now support high-performance computing, gaming and virtual reality platforms.
The company has an expected earnings growth rate of 58.4% for the current year. The Zacks Consensus Estimate for the current year has improved 16.4% over the last 30 days. The stock price has jumped 35.1% in the past three months.
Target Corp. TGT operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items; and apparel, accessories, home decor products, electronics, toys, seasonal offerings, and other merchandise.
The company has an expected earnings growth rate of 25.6% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 36.4% over the last 30 days. The stock price has climbed 28.6% in the past three months.
Lam Research Corp. LRCX has high exposure to the memory segment, which is likely to see tremendous growth over the next few years. The strength is driven by cloud computing, big data, mobile devices and IoT. Technological advancements in the areas of multi-patterning, 3D device architecture and advanced packaging technologies are playing to Lam’s strengths.
The company has an expected earnings growth rate of 21.4% for the current year (ending June 2022). The Zacks Consensus Estimate for the current year improved 22.8% over the last 60 days. It has a current dividend yield of 0.84%. The stock price has appreciated 19.6% in the past three months.
Alphabet Inc. GOOGL has been showing increased appetite in the Home Assistant space. The company is focused on innovation and is launching products and services for multiple industries. Google has been growing rapidly in the fast-growing highly-competitive cloud market.
The company has an expected earnings growth rate of 52.6% for the current year. The Zacks Consensus Estimate for the current year has improved 0.2% over the last 30 days. The stock price has advanced 18.3% in the past three months.
Intuitive Surgical Inc. ISRG designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories. Its da Vinci Surgical System transforms the surgeon's natural hand movements outside the body into corresponding micro-movements inside the patient's body.
The company has an expected earnings growth rate of 33.7% for the current year. The Zacks Consensus Estimate for the current year has improved 0.8% over the last 30 days. The stock price has surged 17.6% in the past three months.
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