One Man’s Opinion: Will Consumer Discretionaries Lead In Earnings Growth In Q3?

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ManThe S&P 500, according to Estimize, is likely to see a negative earnings growth of 2-1/2 percent and revenues growth of negative 1.7 percent. In the last quarter, earnings growth expectations were 3.5 percent, but it ended up with about 1 percent. The peak-rate currently stands at about 66 percent for about 22 companies that have reported third-quarter results and companies do tend to beat expectations with going into the season.

But until now, all commodity-related stocks have slumped with energy EPS sliding 66 percent and materials losing about 5 percent. Globally, China is likely to remain a worry with the bursting of equity bubbles there and the effects are likely to be stronger than in the second quarter, she noted.

Asked which sectors are likely to perform well, Christine said consumer discretionary will be a winner since lower oil does benefit some sectors. Estimize expects the discretionary sector to record a 13.5 percent growth this quarter with a special focus on automobiles.

Consumers are now feeling more confident about making those big-ticket purchases. September US automobiles sales were up a whopping 18.29 percent over August and hit the highest level since July 2005. Lower oil means consumers are confident enough to buy those gas guzzlers once again.

A research by JP Morgan on their credit and debit card spending showed 80 percent of gas savings are going into restaurants, groceries, entertainment and other services that are not captured well in the government’s retail sales surveys, she observed.

Asked if healthcare stocks can jump again, Christine answered in affirmative. The healthcare sector is Estimize’s second earnings leader with a projected earnings growth of about 11 percent. Though growth in the bio-tech sector has been moderating, Gilead Sciences remain an out-performer with year-over-year growth of 63 percent though last few quarters growth has been in triple digits, she explained.

The financial services sector off late saw a lot of buybacks. Asked if the trend is likely to continue, Christine said financials are sort of the middle-of-the-road (from earnings-growth perspective) and Estimize expects an earnings growth of about 4.5 percent. There have been many headwinds for the sector with lower interest rates haunting them for a while now and with the Federal Reserve seemingly less inclined about raising rates this year, earnings are likely to be an issue in the third quarter, and possibly in the fourth quarter as well.

According to the mortgage bankers associations, home loan originations are likely to be down for the third quarter. However, M&As are likely to be a bright spot in the third-quarter with deal activity hitting the levels of 2008.

Although higher volatility has helped trading in the equity markets, whether that has helped them offset the weak fixed-income market remains to be seen. Though Bank of America is expecting highest revenue growth, their performance was really weak in the third quarter of 2014. With five of the big banks announcing results next week, financials will be an interesting sector to watch, she concluded.

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