Wall Street is nervous that possibly a recession is right around the corner. But some analysts think some S&P 500 companies sank into one already.
Nine companies in the S&P 500, including consumer discretionary firms Amazon.com and Under Armour plus Target, are expected to post a contraction in profit in the soon-completed second quarter. And that's coming right after their profit already dropped in the first quarter, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. All of their profit is down by at least 50% on average in the two periods.
This is the corporate version of a recession. A recession for the economy is defined as a drop in economic activity for two-straight quarters. And for these companies, two straight quarters of profit contraction has already happened, or is about to, analysts say.
"The housing market is cooling, economic weakness is hitting both manufacturing and service sector activity, and recession fears are surging," said Edward Moya, strategist at Oanda.
S&P 500: Looking For Signs Of Recession
Investors are treating an S&P 500 recession like a foregone conclusion. The S&P 500 plunged more than 22% this year, putting the much-watched big-cap index into a bear market already.
Just because the S&P 500 falls into a bear market, though, doesn't always mean a recession is coming. The S&P 500 plunged into a bear market (or nearly one) eight times since 1946 without an accompanying recession, says Ryan Detrick of LPL Financial. For instance, the S&P 500 plunged nearly 20% in the three months until Christmas Eve in 2018. But a recession never arrived.
What's more, analysts think S&P 500 companies will post profit growth as a group in the second quarter. Adjusted earnings for the S&P 500 during the second quarter are expected to rise more than 4%, says John Butters, analyst at FactSet. Analysts, though, are cutting estimates. Now, analysts think S&P 500 companies will make nearly 1% less than what they thought in March.
But for some companies, back-to-back drops in profit are likely on the way.
Amazon In Recession? Target, Too
Remember when Amazon.com was the do-no-wrong trillion-dollar FANG stock? It's now defanged.
New CEO Andy Jassy is moving fast to downsize the e-commerce giant that ramped up during the Covid pandemic. And profit is contracting, too. Analysts think the company will earn just 76 cents a share in the second quarter. If they're right, that would mark a contraction of 78% during the period. That might not be a huge deal in itself. But that drop in profit comes after a nearly 150% plunge in Amazon's bottom line in the first quarter to a loss of 38 cents a share.
No matter this formerly leading S&P 500 stock is now down nearly 37% this year.
For once, Amazon is feeling the same misery as some other retailers. Target, too, is seen slipping into a profit recession. Analysts think the retailer will only earn 73 cents a share in the second quarter. That's down 80% from what the company made a year ago. What's more, keep in mind Target's profit already plunged 41% in the first quarter. Now you understand why shares of Target are off nearly 40% this year.
It's unclear if an official recession is here yet. But for some S&P 500 stocks, it's a reality now.
S&P 500 Companies Already In A Profit Recession: Analysts
| Company | Symbol | EPS Q2 % ch. (estimate) | Sector | Avg. EPS % ch. (past two quarters) | Stock YTD % ch. |
|---|---|---|---|---|---|
| Amazon.com | -77.8% | Consumer Discretionary | -112.8% | -36.3% | |
| Under Armour | -88.3 | Consumer Discretionary | -97.3 | -56.8 | |
| Allstate | -77.0 | Financials | -67.4 | 2.5 | |
| Target | -80.0 | Consumer Discretionary | -60.3 | -39.8 | |
| Penn National Gaming | -55.8 | Consumer Discretionary | -58.1 | -47.2 | |
| Illumina | -65.2 | Health Care | -54.3 | -50.8 | |
| Activision Blizzard | -47.5 | Communication Services | -51.1 | 12.3 | |
| Paramount Global | -41.0 | Communication Services | -50.8 | -18.6 | |
| Bath & Body Works | -52.7 | Consumer Discretionary | -50.8 | -52.0 |
