Besides more dysfunction from Washington D.C., investors will likely be cluing in to earnings season this week. Current earnings growth is expected to be around just 2.3%, and this represents a bit of a scaling back from the 5.2% that was expected for Q3 in early July.
Thanks to these declining expectations, there is reason to believe that earnings season may be rough for some sectors. This is especially true given the fiscal issues in the U.S., a looming Federal Reserve, and concerns over the strength of the consumer in light of flailing confidence and home price worries, suggesting that investors definitely need to pick the right sectors this earnings season.
Which sectors to focus on
Two sectors that appear well-positioned heading into this earnings season are transportation and financials. Both of these are expected to see strong growth for the coming earnings season, and thus may be better picks in today’s uncertain environment (see 4 Unbeatable ETF Strategies for Q4).
Transportation in particular could be a solid choice thanks to the rebounding economy, and the positive earnings results from FedEx to open up the season. Meanwhile, financials could be solid depending on how you play the space. Regional banks look to be well-positioned to benefit from the relatively wide spread, while they do not have the same trading revenue issues as their big bank peers.
Fortunately, investors have targeted ways to play both sectors in ETF form. This approach limits the risks that any one company poses to returns, while still allowing for a play on the solid trends in the sector.
For transportation, investors have the iShares Transportation ETF (IYT), while regional banks can be played with the SPDR Regional Bank ETF (KRE). Both of these ETFs carry favorable Zacks ETF Ranks and are in strong industries, and thus may be worth a closer look by investors seeking solid sector bets this earnings season (see all the financial ETFs here).
For more on this coming earnings season and some quality ETFs to play the market, watch our short video below:
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