Top 5 Corporate Bigwigs Flying High in a Volatile February

February is turning out to be extremely volatile with just a day of trading left. In the first two weeks of this month, Wall Street's northbound journey continued smoothly. However, the problem started in the beginning of the second half of February due to a sudden spike in sovereign bond yields.

In the third week, out of the three major indexes, the S&P 500 and the Nasdaq Composite ended in the red while the Dow managed to gain marginally. Meanwhile, the Dow, the S&P 500 and the Nasdaq Composite have dropped 0.3%, 2% and 5.4%, respectively, so far this week. Moreover, market's volatility index — CBOE VIX — skyrocketed 44.7% in the past eight trading days.

However, unperturbed by market's instability, several stocks have skyrocketed in February. A handful of these are currently Zacks top-ranked with more upside left for 2021. Investment in these stocks should be fruitful going forward.

Yield Spike Unnerve Equity Investors/h3

On Feb 25, the yield of the benchmark 10-year U.S. Treasury Note jumped to 1.614%, its highest since Feb 14, 2020 before closing at 1.52%. The yield of the 30-year U.S. Treasury Note jumped to 2.286%. Notably, the10-year U.S. Treasury Note's yield closed 2020 at below 1% and ended January at around 1.09%. This indicates that the yield has soared more than 50 basis points at an alarming speed in less than two months, triggering the panic button among equity investors.

Consequently, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 1.8%, 2.5% and 3.5%, respectively, and recorded their biggest daily percentage loss since Jan 29, Jan 27 and Oct 28, respectively.

Why Stock Markets Tumble/h3

Theoretically, bond yield moves inversely to bond price. The impressive rally of Wall Street in the pandemic-ridden 2020 and its continuation in 2021, the ongoing nationwide deployment of COVID-19 vaccines, a sharp reduction of new cases of coronavirus this month and President Joe Biden's proposed $1.9 trillion of a fresh coronavirus-aid package prompted investors to reallocate funds from safe-haven government bonds to risky equities, resulting in a massive spike in bond yields.

However, higher risk-free return is detrimental to growth sectors, especially technology companies that depend on easy access to credit market at a cheap interest rate. Moreover, higher risk-free return means a higher discount rate for stock prices, which will effectively reduce the net present value of returns from equities.

Meanwhile, a section of economists and financial experts have calculated that the average dividend yield of the S&P 500 Index in the past 12 months was around 1.4-1.5%, meaning that government bonds with higher risk-free returns, are more lucrative now.

Finally, despite Fed Chairman Jerome Powell's repeated assurance of subdued inflation and his pursuing of accommodative monetary policies, several market participants remain skeptical that inflation may appear much earlier than the central bank's expectation. Recently released data for retail sales, housing sector, vehicles sale, industrial production especially for manufacturing industries and growing consumer confidence will inflate the general price level.

Our Top Picks/h3

We have narrowed down our search to five large-cap (market capital >$25 billion) stocks that have popped double digits month to date. All these stocks have strong growth potential for 2021 and have witnessed robust earnings estimate revisions in last seven to 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research

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Written By: Zacks Investment Research