Wall Street's astonishing bull run for more than five months suffered a major setback in early September. The rally hit the highest level on Sep 2 since it recorded the recent trough on Mar 23 but thereafter a sharp downtrend made investors nervous. The holiday-shortened last week was the worst in several months.
Historically, September is known as the worst-performing month in Wall Street. Market participants started panicking that the coronavirus-defying rally would terminate this month. However, a closer look at the market last week revealed that not all stocks suffered due to the pulldown.
Technology Sector Leads Market Mayhem
The technology sector pulled down the overall market after being the predominant driver of the impressive showing over the last five months. It was technology that had helped Wall Street to exit a coronavirus-induced short bear market and form a new bull market.
However, in the due course of the market's V-shaped recovery from its recent trough on Mar 23, technology stocks got overvalued, as stated by many financial experts.
Within the S&P 500 Index, the technology sector plunged 11.1% from Sep 3 to Sep 11. The tech-heavy Nasdaq Composite plummeted 10% and entered into correction territory. However, a massive selloff of technology stocks had a ripple effect, resulting in overall market turmoil.
Wall Street in Turmoil
Last week was highly disappointing for Wall Street. The Dow was down 1.7% last week, marking its second-straight negative week. The S&P 500 lost 2.5%, reflecting its second-straight weekly loss for the first time since May 1, and its worst week since Jun 26.
The Nasdaq Composite tumbled 4.1%, marking its worst weekly performance since Mar 20. Notably, out of 11 broad sectors of the S&P 500 Index, only the materials sector managed to finish in positive territory with a slender gain of 0.8% for the week.
Large scale selling of technology stocks owing to overvaluation concerns, delay in new fiscal stimulus deal, heightening geopolitical tensions between the United States and China, and halt in clinical trials of a leading drug for the potential treatment of COVID-19 were the primary reasons for last week's market turmoil.
Month to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are down 2.7%, 4.6% and 7.8%, respectively. Notably, all three indexes recorded gains in the last five months in a row. However, despite extreme volatility so far this month, a few stocks have popped.
Our Top Picks
We have narrowed down our search to six stocks that have rallied more than 10% in the last week. All these stocks have strong growth potential and witnessed robust earnings estimate revisions within the last 7 to 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy).
The chart below shows the price performance of our six picks last week.
Virtusa Corp. VRTU provides digital engineering and information technology (IT) outsourcing services primarily in North America, Europe and Asia. Although the company's expected earnings growth rate for the current year (ending March 2021) is negative, it has an expected earnings growth rate of 21.6% for next year. The Zacks Consensus Estimate for current-year earnings has improved 24.7% over the last 60 days. The stock price soared 27.4% last week.
RH RH operates as a retailer in the home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings. The company has an expected earnings growth rate of 32.9% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved 31.4% over the last 7 days. The stock price jumped 20.4% last week.
eHealth Inc. EHTH provides private health insurance exchange services to individuals, families, and small businesses in the United States and China. It operates through two segments, Medicare and Individual, Family and Small Business. The company's expected earnings growth rate is negative for the current year. However, it has an expected earnings growth rate of 30.4% for next year. The Zacks Consensus Estimate for the current year has improved 12.5% over the last 60 days. The stock price climbed 12.3% last week.
M/I Homes Inc. MHO operates as a builder of single-family homes in the United States. It operates through four segments: Midwest Homebuilding, Southern Homebuilding, Mid-Atlantic Homebuilding and Financial Services. The company has an expected earnings growth rate of 36.7% for the current year. The Zacks Consensus Estimate for the current year has improved 91.2% over the past 60 days. The stock price rallied 12% last week.
Mr. Cooper Group Inc. COOP provides quality servicing, origination and transaction-based services principally to single-family residences in the United States. Its brand consists of Mr. Cooper and Xome. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 85.3% over the last 60 days. The stock price appreciated 11.3% last week.
Medifast Inc. MED manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products in the United States and the Asia-Pacific. The company has an expected earnings growth rate of 37.1% for the current year. The Zacks Consensus Estimate for current year earnings has improved 18.4% over the past 60 days. The stock price advanced 10.8% last week.