Out of the 312 companies in the S&P 500 that have reported earnings so far for the second quarter, 82.1% reported above analyst expectations, according to data from Refinitiv. Founder and Chief Market Strategist of "The Technical Traders.com" Chris Vermeulen joins Yahoo Finance’s Akiko Fujita to discuss.
- With 312 S&P 500 companies already reporting earnings, more than 82% have beat expectations. That is the highest on record dating back to 1994, at least according to data from Refinitiv. So how are things shaping up for the week ahead? Let's bring in Chris Vermeulen. He is the founder and chief market strategist of thetechnicaltraders.com.
Chris, going back to that number, I mean, I guess it's not really surprising given that expectations were so low going into the second quarter. What stood out to you so far in terms of the reports we've gotten?
CHRIS VERMEULEN: Yeah, well, I mean, I think everyone was in pretty big shock from the COVID shutdown, and everyone really put very low estimates in because we really didn't know what to expect. And things were looking pretty bleak there for a while, and everyone is beating those really low-level earning estimates that people put out.
I mean, the market's been on a tear ever since the low in March. We're seeing a few sectors really lead the way. Technology is really doing most of the heavy lifting-- biotechs, health care helping that, obviously. So we're into a sector-driven market where there's hot pockets, and there's areas that are really underperforming. And that just goes to show that the health of the overall equities market isn't the strongest. So it's really a couple of companies doing a lot of the heavy lifting.
- Yeah, I mean, tech certainly one of those sectors that has been doing the heavy lifting. When you talk about where things are right now, I mean, the expectation was always the second quarter will be the worst, because that would see the totality of the stay-at-home measures we saw. We saw a bit of a bounce-back, and yet now, we're starting to see a lot of these states roll back their measures on reopening. How do you think that changes the outlook going into the next quarter?
CHRIS VERMEULEN: Yeah, I think it's gonna make for a pretty tough next quarter as well. I think, I mean, the earnings, we're starting to see the unemployment rate start to kind of rise. The initial jobless claims is spiking, so that's not a good sign, obviously. That's a sign that things are getting weaker. Obviously, people closing down businesses or restricting hours, that's playing a big role in what's going on.
Earnings, I think, are gonna be very tough. I mean, I think the average earning is down around 28% on the S&P 500, and I think that could really stay up at those levels for what's going on right now. So it's gonna be interesting to see which sectors take off and which ones get clobbered. Financial sector is a really tough one right now, and the real estate and energy, because people aren't traveling, and there's a lot of debt issues starting to climb.
- Yeah, those two sectors you highlighted there, you certainly seem to suggest there is more downside moving forward. But does this present an opportunity for investors to get in?
CHRIS VERMEULEN: It is. I think there's a lot of really good moves coming into play. Obviously, technology is gonna be the leader for a while. We're seeing, you know, other sectors like precious metals actually start to really pick up speed and pick up the slack, which is what we usually see during times of, kind of, chaos and uncertainty-- the metals take off.
I think there's gonna be great potential in certain sectors if they can grab some stability. We'll see what goes on with the banking system and fiscal stimulus plans. The financial sector has been lagging, and I think there's some good upside potential there once we get some clarity on what's going on down the road.
- What about looking outside of the US? You know, we've heard so much about the amount of stimulus, for example, that's been poured into the eurozone. And when you look at the re-openings that have happened, things have run much smoother, at least up to now, over in Europe than they have here, which would seem to suggest that maybe the bounce-back, despite the huge contraction they saw in the second quarter as well, the bounce-back may be much more steady than we see here in the US. I mean, are there opportunities you think investors should be looking to outside of the US right now?
CHRIS VERMEULEN: Yeah, there's probably some hot countries, sectors that you could get into. I mean, the US is definitely-- has a tough time right now. The US dollar losing its value, really, is kind of a deterrent to want to hold equities in a way, because, obviously, if you're holding equities in the US dollar, It's collapsing. You might want to move over to the eurozone, because the euro is rising.
So there's opportunities across the board in all kinds of different ways, whether it's currency-based, or buying assets based in another currency that's rising. So overseas, I think, they've weathered some of this storm a little better than the US, and I think they got beat up pretty hard, their equities markets, and I think they're doing fairly well and they've got some good upside potential.
- So coming back to the US, we've hit on a number of sectors here-- the growth in tech, the weakness you're expecting in real estate and financials. What are some other sectors you think investors are overlooking right now that could see a big upside going into the year end?
CHRIS VERMEULEN: Well, I think the precious metals sector-- gold, silver, and gold miners-- are really kind of something that shine. They are performing in a big way. We're seeing utilities in the last couple of weeks-- really in the last month, actually-- utilities are starting to outperform the broad market. Those are kind of pockets that people should start looking into, because we're starting to get nervous that maybe COVID is coming back.
Everyone's kind of bought into the big tech rally knowing there's gonna be good earnings, because we're really having a change, a shift in how the world is working. People are working from home. They're not commuting. So everyone's been forced to create these home offices, buy services online so they can continue to run their businesses and lives. So that's really fueled that sector.
So I still really like technology, because I think we're changing from a commuting world to a work-from-home world, which means technology, technology, technology. So those are some hot pockets, and there is fear. Bonds continue to rise. Utilities are coming to life. So no matter what happens, you need those kind of utilities running. So we're starting to see money move into those couple other sectors.