In the ongoing third-quarter reporting cycle, earnings have the same old moderate flavor of the last few quarters, but are on the verge of a turnaround. Revenues are displaying better trends after having entered into the growth territory in Q2. As per the Earnings Trends report issued on October 12, 2016, earnings for the S&P 500 are expected to be down 2.9% in Q3 while revenues are likely to rise 1.2%.
Investors should note that while earnings normally draw maximum attention, we would like to emphasize that sales are equally important. This is because sales are harder to be influenced in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak for its core strength. But it is harder for a company to mold its revenue figure.
Both factors make it necessary to look at sectors that are expected to exhibit strong revenue growth this reporting cycle, no matters what their earnings growth picture look likes (read: Tap Q3 Earnings Growth with These Sector ETFs & Stocks).
The consumer discretionary sector is projected to register the highest revenue growth of 11.8% in Q3. With the job market strengthening, wages rising and energy prices still at lower levels, consumers are likely to splurge on leisure and entertainment activities and products.
The reading for U.S. consumer confidence was 104.1 in September, higher than the market expectation of 99.0 and August’s reading of 101.8. The latest level was the highest since the recession. Plus, according to Equity Clock, the seasonal strength for this sector stretches from October 17 to April 12. This trend opens up the opportunity for Consumer Discretionary Select Sector SPDR ETF (XLY - ETF report) (read: Consumer Confidence Hits 9-Year High: ETF Winners).
The medical or health care sector appears the best positioned with a 7.4% revenue growth estimate, the third best in the universe of 16 S&P sectors categorized by Zacks. The rise in mergers and acquisitions, higher chances of Clinton winning the presidential election and supporting the Affordable Care Act, an aging global population and the sector’s non-cyclical nature amid uncertainty can go in favor of the sector (read: ETFs in Focus on Pfizer's Medivation Acquisition).
However, investors should note that the going has become tough for the sector recently on the price gouging issue. Investors can take a look at SPDR S&P Health Care Services ETF (XHS - ETF report) (see all Health Care ETFs here).
U.S. retail sales turned around in Septemberafter a soft August. The sentiment was strong in several pockets of the economy in September, helping many to feel better about the economic situation. Retail/Wholesale is projected to register 5.3% revenue growth in Q3.
However, the upcoming presidential election and rising rate worries may weigh on the apparently optimistic retail outlook for the coming month. Thus it will be wiser to pick a quality and trendy product like Amplify Online Retail ETF (IBUY - ETF report) , which may score ahead irrespective of where the sector is heading. The reason for this is that there has been a gradual but steady shift toward online retailing lately which gives it a clear edge over brick and mortar retailing.
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