Cisco Systems, Inc. (CSCO)

Daily Spotlight: Not All Sectors Are EqualWhen it comes to generating earnings for the S&P 500, we think it makes sense to focus primarily on a few key sectors that can actually make a difference. As an example, the Real Estate sector, which accounts for about 2% of S&P 500 capitalization, is expected to contribute only 1% of S&P 500 EPS during the upcoming 3Q EPS period, which starts next month. Basic Materials is another 2% market weight that may generate 2% of total earnings. We don't think it makes sense to spend a lot of time on deep dives trying to get these sectors right. The groups that really make a difference are going to be Technology, which is expected to account for 19% of the upcoming earnings, and Financial Services and Healthcare, which are expected to account for 18% and 15%, respectively. (Perhaps not surprisingly, these are three economic sectors in which the United States enjoys competitive advantages versus other nations.) Overall, the consensus is forecasting another negative quarter for earnings, with preliminary estimates calling for a year-over-year decline of 3%. Drilling deeper and excluding the Energy sector, which contributes about 8% of EPS, growth should be positive, at around 4%. What are the forecasts for the Big 3? Financial earnings are expected to grow 12% year-over-year, while Technology earnings are forecast to expand at a 6% rate. Healthcare remains under pressure, and profits are forecast to decline about 10% this quarter.