Stocks Retreat as Bond Yields Spike Higher

US benchmark equity indexes retreated from Monday's all-time high closing levels as markets parsed comments by two Federal Reserve officials and awaited official consumer inflation data for October.

The Dow Jones Industrial Average fell 0.9% Tuesday to close at 43,911, while the S&P 500 dropped 0.3% to 5,984. The Nasdaq Composite lost 0.1% to 19,281.4. Materials saw the steepest decline among sectors, while communication services, technology, and consumer staples posted gains.

The US economy is in "a good place," while interest rates are off their recent peak and historic lows, Richmond Fed President Tom Barkin said. This puts policymakers in a position to "respond appropriately" irrespective of how the economy evolves, he added.

Separately, Minneapolis Fed President Neel Kashkari said the US monetary policy is "modestly restrictive," with short-term borrowing costs continuing to cool inflation and slow the economy, though not by much, Reuters reported.

On Thursday, the central bank's Federal Open Market Committee reduced its benchmark lending rate by 25 basis points, following a 50-basis-point cut in September.

The US 10-year yield jumped 12 basis points to 4.43% Tuesday, while the two-year rate advanced 8.6 basis points to 4.34%.

In economic news, US consumers' inflation expectations cooled in October, while labor market concerns eased, according to a survey by the New York Fed.

Official data are expected to show Wednesday that US consumer inflation rose 0.2% sequentially and 2.6% annually last month, according to a Bloomberg-compiled consensus.

Official producer prices data for October are scheduled to be released Thursday.

Small business optimism in the US rose more than projected in October, while the uncertainty index hit a record high, though that's likely to improve now that the presidential election is over, according to the National Federation of Independent Business' latest survey.

Donald Trump won the election last week, marking his return to the White House.

In company news, Mosaic shares dropped 7.7%, the steepest decline on the S&P 500, after its third-quarter financial results fell more than expected.

Amgen was the worst performer on the Dow and the Nasdaq, and among the worst on the S&P 500, down 7.1%.

Tyson Foods surpassed top- and bottom-line expectations for its fiscal fourth quarter and issued guidance implying a slight cooldown in sales in the new year amid ongoing uncertainties with its beef business. The company's shares rose 6.6%, the top gainer on the S&P 500.

Live Nation Entertainment shares gained 4.7%, among the best performers on the S&P 500. The company reported mixed third-quarter results late Monday and said it's seeing strong demand in the current quarter and into 2025 for its Ticketmaster sales segment.

West Texas Intermediate crude oil was little changed at $68.01 a barrel Tuesday. The Organization of the Petroleum Exporting Countries reduced its 2024 and 2025 global oil demand projections for the fourth straight month while raising its world economic growth forecasts.

Gold fell 0.4% to $2,607 per troy ounce, while silver rose 1% to $30.92 per ounce.

On Monday, the S&P 500 eclipsed the coveted 6,000 mark, banking on the post-election rally. Donald Trump’s election victory has raised hopes of lower corporate taxes and deregulation, which helped the market benchmark to scale upward. The recent interest rate cuts by the Federal Reserve also boosted investors’ sentiment.

Thus, investors should make the most of the S&P 500’s upward trajectory by favoring profitable stocks over unprofitable ones. Investors should consider metrics like accounting ratios for performance assessment. We have selected the most successful and commonly used profitability ratio to evaluate a company’s performance.

To that end, NVIDIA Corporation NVDA, Insulet Corporation PODD and Howmet Aerospace Inc. HWM have been selected as the top picks with a high net income ratio.

Net Income Ratio

The net income ratio shows a company’s profitability level. It reflects the percentage of net income to total sales revenues. Using the net income ratio, one can determine a firm’s effectiveness in meeting operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.

Screening Parameters Using Research Wizard:

The net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.

Zacks Rank Less than or equal to 2: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.

Trailing 12-Month Net Income Ratio Higher than X Industry: A high net income ratio indicates a company’s solid profitability.

Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.

These few parameters have narrowed the universe of more than 7,685 stocks to only 35.

Here are three of the 35 stocks that qualified for the screening:

NVIDIA

NVIDIA Corporation leads in visual computing technologies and invented the graphic processing unit or GPU. The 12-month net profit margin of NVDA is 55%.

The company’s expected earnings growth rate for the current year is 116.9%. NVIDIA Corporation currently has a Zacks Rank #2 (read more: NVIDIA Tops $3.5T Milestone - Good Time to Buy NVDA Stock?).

Insulet

Insulet is a leading developer, manufacturer and marketer of the Omnipod Insulin Management System. The 12-month net profit margin of PODD is 21.2%.

The company’s expected earnings growth rate for the current year is 12.7%. Insulet currently has a Zacks Rank #2.

Howmet Aerospace

Howmet Aerospace offers engineered solutions for customers in the transportation and aerospace industries. The 12-month net profit margin of HWM is 14.8%.

The company’s expected earnings growth rate for the current year is 41.9%. Howmet Aerospace currently has a Zacks Rank #2.

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The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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