With the second-quarter earnings season about to begin, Seeking Alpha’s Quant Ratings have given communication services and industrials the highest scores among the S&P 500 sectors ahead of the flood of financial figures set to come in the next several weeks.
The companies in the communication services sector (NYSEARCA:XLC) has earned an average score of 3.65 in SA’s Quant Ratings, the highest among S&P 500 (SP500) (SPY) sectors. This is followed by Industrials (NYSEARCA:XLI), with an average score of 3.45, and Energy (NYSEARCA:XLE), with an average score of 3.34.
The Quant Ratings system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.
Sectors with the lowest average score are consumer staples (NYSEARCA:XLP) with 3.06, followed by real estate (NYSEARCA:XLRE), with a score of 3.14, and basic materials (NYSEARCA:XLB), with a score of 3.15. In general, S&P 500 companies have an average score of 3.27.
The Q2 earnings season will see its traditional kickoff on Friday when several big-name financial firms will start reporting on their performance for the June quarter.
The S&P 500 (SP500) posted a 15.90% gain for the first six months of 2023. The benchmark index’s H1 rally has been driven by a combination of factors, chief among them being a blistering advance in growth stocks led by technology.
Positive sentiment in the early months of the year was also buoyed by signs that the Federal Reserve’s aggressive rate-hiking campaign was having its intended slowdown effect on the economy, with market participants ratcheting up their bets that the central bank would have to end its monetary policy tightening this year.
What analysts are saying about US stocks:
Goldman Sachs: “S&P 500 companies are expected to report a 9% year/year decline in S&P 500 EPS driven by flat sales growth and margin compression. The companies will be able to meet the low bar set by consensus. Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved.”
Berenberg: “US equities are stretched, expensive and narrow after a strong rally in the first half of the year. US gains have stretched the ratio of S&P 500 market cap to US GDP towards 170% against 150% during 2000 peak and a 200% recent post-COVID-19 peak. The US equity market has also rerated back above a 12-month forward P/E of 19x.”
Morgan Stanley: “The recent rally in the US markets was supported by the multiple expansion. Does earnings really matter? While earnings revisions breadth has improved this year, calendar EPS forecasts continue to fall.”
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