The typical trading pattern of September, historically the worst-performing month on Wall Street, is already visible this year. Of the three major stock indexes, the S&P 500 and the Nasdaq Composite have declined more than 1% month to date, while the Dow has dropped 2.2%.

Market participants have been skeptical about the pace of economic recovery since the highly disappointing August job data released on Sep 3. However, tepid job addition in one particular month is not quite indicative of a slowdown in economic growth rate going forward. In addition, both inflation and COVID-19 infection rates seem to be dwindling. But for the time being, U.S. stock markets continue to witness a meltdown.

Bears Dominate This Month

Stock markets consist of bull and bear operators. As bulls fly high, bears wait quietly for a suitable time and some reasons to be good enough for profit-booking, so that they can re-enter the market at a reasonably low level.

Wall Street had an impressive rally in the first eight months of this year after witnessing an astonishing 2020 despite being pandemic-ridden. Therefore, the speculation of a market correction was ripe in the last couple of months.

Disappointing job additions in August together with investors’ expectations of a possible tapering of the Fed’s $120 billion per month bond-buy program acted as catalysts for bears to dominate markets this month.

However, one should not forget that the Fed Chair Jerome Powell has repeatedly said that a struggling labor market is a major hindrance for the central bank to start tapering its quantitative easing program.

Inflation Seems to Have Picked up

Some recently released economic data have shown early indications that U.S. inflation may have picked up. It is likely to remain elevated for the rest of 2021. Jerome Powell has also repeatedly said that the current inflation is transitory, but it may stay for a longer period than previously expected.

On Sep 14, the Department of Labor reported that the Consumer Price index (CPI) rose 0.3% in August compared with 0.5% in July and 0.9% in June. Core CPI (excluding the volatile items like food and energy) was up 0.1% in August compared with 0.3% in July and 0.9% in June. Year over year, the CPI increased 5.3% in August compared with 5.5% in July and 5.4% in June. The core CPI growth rate dropped to 4% in August from 4.3% in July and 4.5% in June.

The Producers Price Index (PPI) grew 0.7% in August compared with 1% in both July and June. Excluding volatile items, core PPI rose 0.6% in August compared with 1% in July and 0.9% in June.

The Institute of Supply Management revealed in its U.S. manufacturing PMI report for August, which reflected that the Prices Paid Index (input costs to manufacturers) dropped to 79.4% in August from 85.7% in July and 92.1% in June.

Moreover, the core (excluding volatile items like food and energy) PCE inflation — Fed’s favorite inflation gauge — increased 0.3% in July compared with an increase of 0.5% in June. Year over year, the core PCE inflation climbed 3.6% in July, marking the same rise as in June.

Coronavirus Infection Rates Dwindle

The economic effect of coronavirus infections may not be as severe as last year when there was no vaccine. According to the U.S. CDC, the 7-day average of COVID-19 new cases came in at around 136,000 for the week ended Sep 10, down from 157,000 average new cases at the end of August.

On Aug 23, the FDA granted the first full approval to the COVID-19 vaccine developed by Pfizer Inc. (PFEFree Report) and BioNTech SE (BNTXFree Report) . CNBC reported citing two sources familiar with the situation that the FDA is likely to authorize this vaccine for children aged 5-11 years old by the end of October.

The full approval of the vaccine is expected to convince many Americans who are still reluctant to receive a shot despite the rapid spread of the highly-infectious Delta variant of coronavirus. More than 60% of U.S. citizens have already received at least one shot.

Our Top Picks

Several good stocks are available for investment in September. However, we have applied our VGM Style Score model to narrow down the search to five stocks that have provided double-digit returns year to date.

These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the past 30 days, indicating that the market currently expects these companies to do solid business in 2021. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A. 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 year to date.

Image Source: Zacks Investment Research

HP Inc. (HPQFree Report) is benefiting from solid demand for Personal Computers amid the pandemic-led remote-working and online-learning wave. Its recently reported earnings of third-quarter fiscal 2021 reflect a strong rebound in the Printing business, which is a welcome development. Furthermore, stringent cost control measures are expected to drive margin over the long run.

The company has an expected earnings growth rate of 63.6% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 30 days. The stock price has advanced 12.1% year to date.

Kohl’s Corp. (KSSFree Report) operates as a retail company in the United States. It has been benefiting from its strategic framework, which focuses on driving top-line growth, expanding operating margin, implementing disciplined capital management as well as undertaking an agile, accountable and inclusive culture. Kohl’s strong brand portfolio and partnerships are driving growth.

The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 47.1% over the past 30 days. The stock price has surged 26.7% year to date.

Macy’s Inc. (MFree Report) is an omnichannel retail organization, operating stores, websites and mobile applications. The company has been benefitting from efforts undertaken as part of the Polaris Strategy including boosting assortments and optimizing store portfolio.

During second-quarter fiscal 2021, the company witnessed sturdy growth across all three brands namely; Macy’s, Bloomingdale’s and Bluemercury. Management is on track to strengthen its omni-channel capabilities with investments toward online shopping experiences, data and analytics as well as better fulfillment capabilities.

The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 7 days. The stock price has soared 85.9% year to date.

LKQ Corp. (LKQFree Report) distributes replacement parts, components, and systems used in the repair and maintenance of vehicles. It operates through three segments: North America, Europe, and Specialty.

The company is benefiting from its strategic buyouts like the Elite Electronics buyout and the acquisition of Green Bean Battery and Greenlight Automotive. It is witnessing ongoing recovery in demand in its North American and European segments, along with robust strength in its Specialty segment and the trend is likely to continue.

The company has an expected earnings growth rate of 44.7% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 1.7% over the past 30 days. The stock price has climbed 45% year to date.

United States Steel Corp. (XFree Report) produces and sells flat-rolled and tubular steel products primarily in North America and Europe. It operates through three segments: North American Flat-Rolled (Flat-Rolled), U. S. Steel Europe (USSE), and Tubular Products (Tubular).

Its Big River investment is expected to contribute to its margins. The investment reinforces U.S. Steel’s position in high-margin steel-end markets. Higher domestic steel prices should also provide a boost to the average selling prices of U.S. Steel and drive its margins. Tight supply and strong end-market demand are driving steel prices.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 1.1% over the past 30 days. The stock price has jumped 45.8% year to date.

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