The third-quarter earnings season is officially underway, and investors are bracing for a mixed bag of results. Scotiabank analyst Hugo Ste-Marie offers insights into the sectors poised for success and those facing headwinds.
Ste-Marie anticipates a temporary dip in overall earnings, though he believes investors will be less punitive of earnings misses this quarter compared to the previous one. The S&P 500 is expected to register a modest 0.5% earnings growth quarter over quarter and 3.9% year over year, a significant decrease from the 12% year-over-year growth seen last quarter.
The analyst emphasizes that investors will be closely scrutinizing Q3 numbers and earnings guidance, potentially leading to sharp market reactions if expectations aren’t met. “After a huge run-up in equity prices, investors will likely scrutinize Q3 numbers and earnings guidance, which could lead to sharp reactions if they are not pleased,” Ste-Marie said. However, he remains optimistic, adding, “Still, the Q3 earnings bar has been reduced since June, and given that economic activity remains robust, another earnings beat could be around the corner.”
This quarter’s earnings will also provide crucial insights into the health of consumer spending. Ste-Marie notes that “similar to last quarter, we will continue to watch some key bellwether consumer stocks and banks to spot any change in consumer behavior or, rather, more visible cracks in consumer spending/bad loans.” The Johnson Redbook index, which tracks weekly retail sales, indicates overall healthy spending, although department store sales are struggling while discount categories are performing well.
The earnings reports could also provide key information on the impact of recent hurricanes, Helene and Milton.
Sector by Sector:
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Technology:
Ste-Marie projects the technology sector to lead the pack with a 15% increase in earnings year over year.*
Communications and Healthcare:
These sectors are also anticipated to be top performers.*
Energy:
In contrast, the energy sector is projected to experience a 24% decline in profits year over year.*
Materials:
This sector is also expected to show a reduction in profits.As investors navigate the earnings season, it will be crucial to monitor these key sectors, as they offer valuable insights into the overall health of the economy and the direction of the market.
