Brandon Nelson of Calamos Investments names two rapidly growing companies providing financial services on your phone
While earnings growth for the S&P 500 is expected to slow during 2027, it is expected to accelerate for small-capitalization stocks.
Despite all the turmoil and rising interest rates, 2026 is showing the power of profit growth to provide good performance in the stock market.
That takes us to our call of the day from Brandon Nelson, a portfolio manager at Calamos Investments, who believes investors are looking at an excellent setup next year for small-capitalization stocks.
Based on consensus estimates among analysts polled by FactSet, companies in the S&P 500 SPX are expected to increase earnings per share by a weighted 34.8% this year. But earnings growth for the benchmark U.S. large-cap index is expected to slow to 15.1% in 2027.
The iShares Russell 2000 exchange-traded fund IWM holds 1,986 companies as it tracks the performance of the Russell 2000 Index RUT of small-cap stocks. According to FactSet, the weighted consensus 2027 earnings per share estimate for companies whose stocks are held by IWM is $13.69, which would be a 49% increase from the 2026 EPS estimate of $9.16.
Nelson runs the Calamos Timpani Small Cap Growth Fund CTSIX, which is rated four stars, the second-highest rating, within Morningstar's "small growth" fund category. He named two examples of small-cap stocks that he favors - providers of financial services through phone apps.
As a "neobank," Dave $(DAVE)$ provides a variety of financial services, including digital checking accounts with no minimums, in partnership with traditional banks. The company's main business is ExtraCash, through which it makes short-term loans that it underwrites with its proprietary CashAI engine, for real-time credit decisions that steer clear of traditional FICO $(FICO)$ scores.
The company said that during the second quarter, its average number of monthly transacting members had increased by 17% to 3.08 million. Analysts polled by FactSet expect the company's revenue for 2026 to increase 32% to $730 million and its earnings per share to increase by 50% to $57.23. The stock closed Monday at $320.70 and trades at a forward price/earnings ratio of 17.5, compared with 23.3 for IWM and 19 for the S&P 500.
Nelson said Dave offers a "less onerous" way for customers to obtain banking services than they can find at large traditional banks. Dave is currently testing its new "Dave Flex," which is a buy now/pay later service, making use of the Mastercard (MA) payment network.
The other stock pick shared by Nelson is Ethos Technologies (LIFE), which sells life insurance products through its phone app and through a separate app within ChatGPT. Nelson described Ethos as "a new name for investors, probably under-owned and under-followed," since its initial public offering in January.
Ethos is covered by nine analysts polled by FactSet, all of whom rate the stock a buy. This one may require patience, as the consensus price target for the stock is $35.63, which is only 4% higher than the closing price of $34.24 on Monday. Analysts working for brokerage and research firms typically set 12-month price targets for stocks.
Ethos reported second-quarter revenue of $190 million, more than double from the year-earlier quarter. Analysts expect the company to lose $2.08 a share this year, but to report positive net income of $1.06 a share in 2027.
"They have a unique model," Nelson said, adding that traditionally buying life insurance can be a "painful process" not only for the customer, to find out if they qualify, but for agents who might wait a long time to receive their commissions.
"With Ethos, it is a quicker turnaround. They have a direct-to-consumer portion of their revenue and then third-party channel" with about 15,000 agents, he said.
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are tilting lower, with 10-year Treasury yields BX:TMUBMUSD10Y closing in on 20-year highs, hovering above 5.248%. The dollar DXY is higher.
Key asset performance Last 5d 1m YTD 1y S&P 500 7683.69 -1.04% -0.03% 12.24% 15.35% Nasdaq Composite 26,820.38 -1.11% 1.70% 15.40% 18.72% 10-year Treasury 5.246 27.60 44.90 107.40 109.40 Gold 4178.1 -4.63% -7.10% -3.56% 8.16% Oil 92.22 0.27% 6.85% 60.63% 45.96% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Anthropic reportedly recorded $4.6 billion in revenue and nearly $42 billion in net losses for 2025.
OpenAI will scrap the release of its next-generation AI model due to safety worries.
The maker of the world's smallest smart ring, Oura $(OURA)$, is delaying its IPO over market "uncertainty."
President Donald Trump will meet with technology company CEOs at 12:30 p.m. Eastern, reportedly including Anthropic's Dario Amodei, Meta's Mark Zuckerberg and OpenAI president Greg Brockman.
The S&P Cotality Case-Shiller home price index is due at 9 a.m., followed by consumer confidence and job openings at 10 a.m. Several Federal Reserve speakers are on the calendar, including Gov. Michael Barr, at 12:40 p.m., Chicago Fed President Austan Goolsbee at 1 p.m., St. Louis Fed President Alberto Musalem at 1:30 p.m. and New York Fed President John Williams at 2 p.m.
Nvidia looks to insurers to backstop AI chip loans, spread compute financing risk
The chart
The message from this chart from Deutsche Bank strategists is that the rotation into tech stocks that began in July still has "room to run." A team led by Parag Thatte said current investor positioning in megacap growth and tech stocks is more crowded than 80% of market history, but still below a peak of 99% in June. The strategists added that the relative outperformance of megacap growth and tech has "risen to the upper half of its long-run trend channel, but is not yet at the top."
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Ticker Security name NVDA Nvidia TSLA Tesla MU Micron GME GameStop SPCX SpaceX AMD Advanced Micro Devices META Meta AAPL Apple TSM Taiwan Semiconductor Manufacturing AMZN Amazon
-Philip van Doorn