How Wall Street Is Looking at Q3 Earnings Season, Sector by Sector

Investing

Published: October 15, 2018 11:45 am

Last Updated: January 11, 2020 4:25 pm

The week of October 15 to October 19 is when third-quarter earnings will fly into hyper-drive. Endless numbers of America’s biggest and smallest companies communicating the most recent quarter and future guidance to their shareholders will be the focus of the markets for the next two to three weeks. Investors have been dealing with rising interest rates and a wave of profit-taking in equities ahead of the earnings season.

Despite the strong selling pressure of the week of October 12, Wall Street is generally looking for a solid performance on companies issuing earnings and guidance. The question to ask is whether this is all already priced into stocks after a nine-year bull market and with tax reform’s benefits already having been seen in prior reports.

While there has been a strong consumer, high consumer confidence and a strong economy, the reality is that waves of less optimistic economic numbers have been issued. And to make matters even more uncertain, the impact of tariffs and trade wars have only just started to be seen and the real exposure ultimately remains unknown while it has not been resolved.

24/7 Wall St. has come up with its own view on earnings season by sector, along with relative performance on the top exchange traded funds for those sectors. After our own previews, we also have shown what several top firms have issued to their clients regarding their own expectations coming into earnings season.

The 24/7 Wall St. views are not necessarily in any order or rankings. These also were shared with our morning email newsletter readers over the weekend and on Monday morning. We have shown performance along with color and commentary so that readers get a full synopsis rather than just some quick-hit views without any references.

Technology

Major momentum names have pulled back sharply, and the FANG stocks have effectively stopped leading the market higher. And semiconductor stocks and semiconductor earnings are still trending to weakness rather than strength. Now there is a new fear that China has infiltrated technology with tiny chips that can report back to “someone.” Then again, what if the selling has been overdone, particularly considering that investors often get excited about technology in the fourth quarter. And the ultimate reminder is that the new old tech is not the future technology, based on industry classification changes of many companies to communications services.

Technology Select Sector SPDR ETF (NYSE: XLK) may have bounced from last week’s lows, but that was after a sharp 10% sell-off over the course of a few trading days just in October. The ETF is still up just over 10% so far in 2018, but it is down almost 4% over the past week and down over 5.5% in the past month. The top names in the fund include tech giants such as Apple, Microsoft, Cisco and Intel.

Energy

Oil and gas should have stood to benefit from the recent return to higher oil prices. The long-standing floor that was in on oil services and exploration firms was been followed by a recent wave of analysts raising their ratings or price targets. That said, NYMEX oil slid from $75 a barrel last week to about $71 as of Monday. Unfortunately, the stock selling and oil sell-off last week knocked the wind out of the oil and gas stocks. Still, these shares remain down substantially from their 52-week highs and compared with their multiyear highs.

There are two key oil and gas ETFs. The Energy Select Sector SPDR ETF (NYSE: XLE) is up just 1% so far in 2018, but it is down over 5% in the past week and down over 1% in the past month. The VanEck Vectors Oil Services ETF (NYSE: OIH) is down almost 7% so far in 2018, and the recent gains have turned into losses after falling 5.5% in the past week, despite being up 0.5% over the past month. Both ETFs had traded up handily since early September and were looking like breakout winners before the most recent slide in oil and the stock market.