Earlier we highlighted how companies were beating expectations at even a higher rate than they normally do (than they normally do by managing expectations ahead of reports). Thus so far earnings season was delivering profit reports that were above expectations.
Breaking down earnings estimates by sector, Information Technology, Industrials, and Financials have enjoyed the highest upward earnings adjustments by analysts since March 31st, as shown by the chart below from Econompic.
Yet if we look at stock performance over the last three months by sector, two of the three stars above have underperformed the S&P 500. The broad S&P 500, in orange below, has outperformed both the S&P 500 Financials and S&P 500 Industrials.
Both of these sectors have still outperformed the S&P500 year-to-date (not shown), which could explain some of their recent underperformance, ie. the S&P500 has been playing catch up.
Yet given Financials and Industrials more recent underperformance in the market contrasted against their outperformance in terms of upward earnings revisions, perhaps Financials and Industrials will start beating the S&P 500 again going forward. Personally, we’re a fan of Industrials. Information Technologies probably isn’t a bad space either.