Rising rates and a Fed determined to "break the world" is chilling the S&P 500. But some fast-growth companies are powering right through it, analysts say.
Eight stocks in the S&P 500, including consumer discretionary MGM Resorts, materials firm Albemarle and financial Progressive, are on pace to report giant and accelerating profit growth in the third quarter, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. All are expected to notch at least 150% higher adjusted profit in the just finished third quarter. What's more, all the companies' profit is seen rising by more than it did in the second quarter, too.
Positive earnings could be one of the only elements able to hold the S&P 500 together. "This week, I'll be keeping my eye on earnings I think there's an expectation in the market that earnings will plummet," says Jason Brady, President and CEO at Thornburg Investment Management. "If results come in a little better than we expect, so we could see some relief in the short term."
S&P 500 Investors Braced For Slow Growth
Investors will be on the lookout for good news during earnings season — kicking off in earnest this week.
Only 10% of the companies in the S&P 500 reported their third-quarter earnings, says FactSet's John Butters. And so far, it's not pretty. Rising rates are starting to sink in and slow the economy plus most companies' profit growth.
Earnings growth is only landing at 1.6% during the quarter for the S&P 500, says Butters. That's the lowest growth rate since the third quarter of 2020 and below what analysts called for when the reporting season started.
And most of the S&P 500 sectors are expected to see their profit drop. "Four of the eleven sectors are reporting year-over-year earnings growth, led by the energy, industrials, and real estate sectors," says FactSet's John Butters. "On the other hand, seven sectors are reporting or are predicted to report a year-over-year decline in earnings, led by the financials, communication services, and materials sectors."
But a handful of S&P 500 companies are thumbing their noses at the Fed's aggressive moves and accelerating big growth anyway.
Faster Growth Despite The Fed
The City of Sin long sidesteps the reality outside of Nevada. And MGM Resorts is doing it again.
The operator of casinos in Las Vegas, including The Mirage, is almost acting like interest rates never rose. The company's adjusted profit per share in the third quarter is seen hitting 24 cents a share. If analysts' call is right, that would mark more than 700% growth from the same period a year ago. That's impressive as it's an acceleration of the strong 123% growth in the second quarter, when profit rose to 3 cents a share, up from a loss of 13 cents a share.
Investors, though, still aren't convinced the profit growth can continue. Shares of MGM are down more than 28% this year. But another blowout quarter for profit would help win over investors still suspicious that the growth is real. MGM is expected to report third-quarter results on Nov. 2.
S&P 500 Investors Like Accelerating Profit Growth
But investors are already onboard big growth at lithium seller Albemarle. Shares are up nearly 6% in a year the S&P 500 is down nearly 20%. What's the good news? Analysts think the company on Nov. 2 will report 564% higher profit of $6.97 a share. That's even more robust than the 288% profit growth it reported in the second quarter.
And shares of insurer Progressive are up even more this year: nearly 17%. And it's easy to see why. The company's profit report on Nov. 16 is to show 552% profit growth in the third quarter. That's a huge acceleration from the company's 11.1% adjusted profit growth in the second quarter.
It's true you shouldn't fight the Fed. But some S&P 500 companies are finding ways to grow around it.
Accelerating S&P 500 Profit Despite Fed
Third-quarter profit seen rising 150% or more in third quarter, topping second-quarter growth
| Company | Symbol | Q2 2022 profit % ch. | Profit growth expected Q3 | Sector |
|---|---|---|---|---|
| MGM Resorts | 123.1% | 710.3% | Consumer Discretionary | |
| Albemarle | 287.6 | 564.1 | Materials | |
| Progressive | 11.1 | 552.4 | Financials | |
| Live Nation Entertainment | 173.3 | 462.3 | Communication Services | |
| Delta Air Lines | 234.6 | 410.8 | Industrials | |
| Everest Re Group | -33.1 | 297.6 | Financials | |
| Aptiv | -63.3 | 163.5 | Consumer Discretionary | |
| Lamb Weston | 47.7 | 152.1 | Consumer Staples |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
