US earnings season is getting underway and the mood among corner suite executives and Wall Street analysts is, well, kind of blah.
A super-strong dollar, slumping commodity prices, the prospect of rising interest rates and an uneven global economy are weighing heavily on overall earnings estimates.
Continue Reading Below
Analysts surveyed by FactSet Research are forecasting a 4.5% dip in second-quarter, per share profits among companies listed on the Standard & Poor’s 500 Index.
Dig a little deeper into the numbers and the earnings picture isn’t so bleak.
Investors just need to be discriminating.
For instance, there’s a big disparity among sector outlooks.
Energy companies, naturally enough, have been the hardest hit by the prolonged slump in oil prices.
Take that out of the mix, though, and S&P profits could grow more than 8% for all of 2015.
Some sectors such as financial, consumer-discretionary and health-care sectors could see double-digit gains in earnings for the year, according to FactSet Research.
Investors are starting to come back to financial stocks, despite all the government fines banks and brokerages have faced thanks to some bad behavior.
The index has advanced (10%) over the last year.
While rising rates are bad news for many companies, they are welcome for financial institutions that lend.
Higher rates are good for banks because lenders can charge more for loans and make bigger profits on the spread between deposit rates and loan rates.
As long as interest rates don’t go up too high, too fast, banks may benefit simultaneously from a stronger economy and higher interest rates.
Some portfolio managers argue that current bank stock valuations don’t reflect the rosier earnings outlook for banks.
Second quarter US corporate results aren’t likely to blow your socks off.
However, the outlook is better if you steer clear of energy companies and consider the financial, consumer-discretionary, and health-care sectors.
As always, there’s hidden value in the market if you know where to look.
The investments discussed are held in client accounts as of July 13, 2015. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Subscribe to our once-weekly email newsletter and get the best posts delivered to you in one convenient place, to browse at your leisure://
The post Banks and healthcare lead earnings pack appeared first on Smarter InvestingCovestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.