The stock market’s recent bounce could be good news for Starbucks , eBay , and other companies with the largest profit swings—if the rally continues.
The S&P 500 has gained just over 8% from its intraday low for the year, hit on May 20, partly because the minutes from the Federal Reserve’s most recent policy-setting meeting implied that the central bank could soon slow down the pace of interest-rate increases as the rate of inflation slips and economic growth weakens. Consistent with that hope, high inflation has begun to decline already.
Still, there is plenty of reason to believe the recent gains could be a “bear market rally,” with buying by people taking advantage of the year’s losses offering a respite amid a larger move downward. The S&P 500 is still down about 15% from its early January record all-time high. Investors are still assessing how badly rising interest rates will dent growth in the economy and in corporate profits.
Many of the stocks that have been hurt the most are those whose profits are most sensitive to changes in economic demand. That means those shares could rebound the most if investors remain relatively hopeful about the economy.
Those companies have particularly “high earnings turbulence,” writes Dennis Debusschere, founder of 22V Research. A group of stocks that fit the description has averaged a better return during bear-market rallies than any other type the company tracked.
Five of the best examples from the firm’s list are below. They include stocks in economically sensitive sectors like consumer discretionary, semiconductors, industrials, and financials. People cut spending on goods and experiences that aren’t essential when they tighten their budgets. And banks lend less to people and businesses when economic activity slows.
Starbucks (SBUX) stock has gained 9% from its lowest close of the year in early May. eBay (EBAY) has gained 15% from its lowest close of the year. American Airlines Group (AAL) has risen 33% while Western Digital (WDC) is up 34% and PNC Financial (PNC) has gained 10%.
The other 26 stocks on the list, to be sure, include a handful of oil stocks. Those have already soared this year as the price of oil has done the same. The price of oil could decline if economic demand wanes enough or if restrictions on Russian oil imposed in response to the country’s invasion of Ukraine are lifted. Oil stocks are on the list regardless because they historically have high earnings turbulence, given that oil consumption takes a hit when economic activity slows.
This is the rest of the list: Exxon Mobil (XOM), Bank of America (BAC), Wells Fargo (WFC), Conoco Phillips (COP), Raytheon Technologies (RTX), Morgan Stanley (MS), Goldman Sachs Group (GS), General Electric (GE), EOG Resources (EOG), PNC Financial Services (PNC), Pioneer Natural Resources (PXD), Occidental Petroleum (OXY), Marathon Petroleum (MPC), American International Group (AIG), Devon Energy (DVN), Phillips 66 (PSX), Sysco (SYY), Prudential Financial (PRU), Public Service Enterprise Group (PEG), Diamondback Energy (FANG), Mosaic (MOS), Expedia Group (EXPE), CarMax (KMX), Nielsen Holdings (NLSN), Lincoln National (LNC), Ceridian HCM Holding (CDAY), and Vornado Realty Trust (VNO).
Just always remember the context. This year has already featured a rally in energy stocks, while other companies have suffered.
Write to Jacob Sonenshine at email@example.com
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