Many investors have pretty low expectations for earnings season. Overall earnings growth is actually expected to come in negative for the quarter which could create a troubling situation given that many stocks are at all-time highs.
Still, the start to earnings season has been relatively good for a number of key companies. Alcoa finished in-line with the Zacks Consensus, while a number of key financial companies—which are expected to be one of the few sectors with good earnings growth—came in above expectations as well.
But now, we are expected to get into the heart of earnings season with a variety of key companies in numerous industries looking to report over the next few days. This group of companies could easily make or break earnings season for the entire market, or at the very least, drive returns for their respective sectors (see 3 Top Ranked Sector ETFs for Earnings Season).
In particular, we are zeroing in on the companies highlighted below and their sector ETFs. Any of these companies and funds could be in for a big week and thus should be monitored closely by traders seeking to find some solid picks in today’s choppy market environment:
As we alluded to earlier, financials were off to a pretty good start in Q2 earnings season. Both JP Morgan and Wells Fargo came through on their quarterly reports, providing financial ETF investors with a solid end to the week.
Now though, the real heart of the financial sector earnings season begins with a deluge of companies reporting this week. Among the important names in this group are Citigroup (C), Bank of America (BAC), American Express (AXP), and Goldman Sachs (GS).
All four of these companies also find their way into the top ten holdings of the iShares Dow Jones US Financial Services ETF (IYG), suggesting that it will be a big week for this fund. The fund has beaten out the S&P 500 over the past month, though not by a huge margin (4% to 3.2%), so this next round of earnings reports could be key for this ETF (also read Time for This Top Ranked Financial Sector ETF?).
Many investors are down on the consumer staples sector this quarter, as the focus has been on higher growth sectors like the discretionary segment, technology, or other high beta corners of the market. In fact, our research shows that growth for this segment is expected to come in at -1.0%, while revenue and margins are expected to decline quarter-over-quarter as well.
For this reason, some sluggish results from a couple of the top names in the space could really drag down on the overall sentiment for this corner of the market. In particular, both Coca-Cola (KO) and Phillip Morris International (PM) are expected to report this week, easily setting the tone for the rest of the staples industry (read The Comprehensive Guide to Consumer Staples ETFs).
One fund that looks to be in focus due to these reports is the Consumer Staples Select Sector SPDR (XLP). This product puts nearly 20% into the combination of KO and PM, so their reports could definitely drive this recently underperforming fund this week (the ETF has underperformed SPY by about 60 basis points in the last month).
Many investors look to technology stocks during bull markets that are favoring high beta names, and this latest run up has been no exception. However, earnings are very mixed for this sector, and the broad technology space, as represented by XLK has actually underperformed the broad market over the past month.
Still, there are pockets of optimism in the space, specifically when you drill down into the ‘internet’ corner of the market. Funds in this space, such as the First Trust Dow Jones Internet Index ETF (FDN) have crushed the market over the past month—up about 7.8% in the time frame—and thus are looking for a better-than-average earnings season (see 3 Tech ETFs Still Going Strong).
FDN looks to have a volatile, and important, week thanks to some key earnings reports in a handful of its top components. In fact, three of the fund’s top five holdings—GOOG, EBAY, and YHOO—all report this week, suggesting it could be a big test to see if this outperforming space can keep it up during this important time for the market.
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