Sector Divergence, Earnings Stats

On this last trading day of January, below is a snapshot of how the major US sector ETFs have performed so far this year. Over these last few weeks, as the broad market has rallied, we've definitely seen some sector divergence. Defensive sectors like Consumer Staples (XLP) and Utilities (XLU) have come under selling pressure, while cyclical sectors more tied to the business cycle have surged. Communication Services (XLC) and Consumer Discretionary (XLY) are both up more than 12% YTD already, while Technology (XLK), Materials (XLB), Real Estate (XLRE), and Financials (XLF) are up more than 5%. The only sectors down on the year are Consumer Staples, Utilities, and Health Care (XLV). At the moment, four sectors are overbought (more than one standard deviation above their 50-DMAs) versus three that are oversold (more than one standard deviation below their 50-DMAs). 

Below is a snapshot of price charts for six sector ETFs pulled from our Chart Scanner tool. These are the three sectors up the most YTD (XLC, XLRE, XLY) and down the most YTD (XLP, XLU, XLV).

(Click on image to enlarge)

With earnings season now in full swing, below is a look at where beat rates stood at the end of last week. As shown, the percentage of companies that have beaten EPS estimates this season stands at 61%, which is 9 percentage points lower than the 70% beat rate we've seen over the last 3 years. The percentage of companies that have beaten sales estimates this season is even lower at 58% compared to the 70% reading we've seen over the last 3 years.

When it comes to forward estimates, this season we've seen 4% of companies raise guidance versus 7% that have lowered guidance. Both of these numbers are lower than the readings we've seen over the last 3 years.

While beat rates have been a little weaker than normal this season, stock prices have actually been reacting more positively to earnings reports. Again, through last week, the average stock that had reported earnings had gained 1.22% on its first trading day following the release of the report. That's a lot more positive than normal, indicating that investors have been pleasantly surprised by the results so far this season.

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Disclaimer: Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any ...

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