Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Two Sectors To Watch In Q4 Earnings Season

By MarketBeat.com (Thomas Hughes )Stock MarketsDec 01, 2020 12:38AM ET
www.investing.com/analysis/two-sectors-to-watch-in-q4-earnings-season-200546374
Two Sectors To Watch In Q4 Earnings Season
By MarketBeat.com (Thomas Hughes )   |  Dec 01, 2020 12:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-0.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AMZN
-0.76%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HD
+1.51%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLY
+0.06%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLV
+0.59%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

It’s Time To Get Ready For Q4 Earnings

With the 3rd quarter earnings season all but over it is time to look at what to expect from the next cycle. If the Q3 results are any indication, and I think they are, what investors need to expect is this: the consensus outlook for the 4th quarter is still too low. The difference between the S&P 500 consensus estimate at the start of the Q3 season and the final result is close to 1800 basis points. That compares to about a 1400 basis point difference in the 1st quarter.

So far, the consensus for Q4 has risen only 200 basis points from a low of -12.7% to the current -10.6%. That leaves quite a bit of upswing and based on the data, revenue earnings are accelerating so the difference could be much larger. The takeaway is the earnings rebound is strong, the trajectory of growth is up, the outlook for Q4 is too low, and there is a very great chance that Q4 earnings growth will be positive. All reasons to think the S&P 500 will go higher. The caveat is that not all sectors will see the same growth. The Energy Sector, for one, is still looking at a near triple-digit decline in YOY earnings and that figure is getting worse, not better.

Consumer Discretionary Is A Rock-Star

The Consumer Discretionary Select Sector (NYSE:XLY) is not one you think of, at least not me, when I am thinking about an economy on the rocks. The pandemic sparked a massive downgrade of the sector that, it turns out, was very very wrong. Not only was the U.S. consumer in good shape before the pandemic started but the economic stimulus and economic rebound have supported robust spending in this area. Looking at the 3Q numbers, the consensus estimate at the beginning of the quarter was a full 3200 basis points below the reality. Looking at the 4th quarter consensus, the average estimate has only improved by 180 basis points suggesting the analysts are far behind the curve.

XLY Stock Chart
XLY Stock Chart

The top two holdings in the XLY Consumer Discretionary SPDR are Amazon (NASDAQ:AMZN) and Home Depot (NYSE:HD) and they account for more than 30%. Both companies have reported robust upticks in YOY revenue and earnings due to the pandemic and those trends are not expected to wane.

Regarding Amazon, it is the go-to source for eCommerce and that industry is booming. Amazon, itself, has sustained YOY revenue growth in the range of 40% while others are reporting triple-digit eCommerce gains. As for Home Depot, the pandemic is supporting a secular shift to at-home living that can also be seen in the housing data.

Looking at the chart of weekly prices it is clear the XLY is in a strong rebound. The ETF not only rebound in a Vee-bottom but it moved up to set new all-time highs after the correction. Now, the ETF appears to be a little overextended and in need of a sell-off. The indicators are still technically bullish but show major divergence. I wouldn’t expect the market to reverse but I would expect to see it sell-off. When it does I would target the $150 and $140 levels as potential entry points.

The Health Care Sector Is Growing The Fastest

The Health Care Select Sector (NYSE:XLV) is another surprising winner from the Q3 reporting season. The Health Care sector finished the quarter with the highest rate of YOY growth of all 11 S&P 500 sectors. The final tally was just shy of 13.0% YOY EPS growth or a 1350 basis point improvement over the consensus estimate.

Looking forward, the sector is expected to lead in the 4th quarter as well. The current consensus is near 4.5% and has been holding steady despite the strong 3Q showing. On an industry basis, all 6 sub-industries are growing and should contribute to positive results in the 4th quarter. Assuming the 3Q performance is repeated, EPS growth for this sector could reach the 17%-to-20% range.

The Health Care sector made a solid rebound from the March lows just like the Consumer Discretionary Sector but not quite as robust. The XLV Health Care Sector SPDR peaked out near 9.0% above its pre-COVID all-time high where the XLY is up closer to 20%. Another difference is that the XLV has already begun to pull back from its peak and hinting at a buy signal. The ETF is bouncing from potentially strong support at $108 with mixed indicators. The indicators are mixed but consistent with consolidation and support at this level. The biggest risk, technically speaking, is the stochastic indicator. Stochastic is showing a weak bearish crossover that may lead the price action lower. In that scenario, the 30-bar EMA is the next target for support.

XLV Chart
XLV Chart

Original Post

Two Sectors To Watch In Q4 Earnings Season
 

Related Articles

Two Sectors To Watch In Q4 Earnings Season

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email