While pessimism still weighs heavily on global equities and exchange traded funds, third-quarter earnings season may provide the catalyst for the next move in stocks.
SPDR S&P 500 ETF (NYSEArca: SPY) lost ground Friday and is down about 12% over the last three months.
With heightened uncertainty and volatility, market predictions have been more guarded and conservative, reports Ian Thomson for the Dow Jones Newswires.
Wall Street has lowered its 2012 earnings expectations, according to Barry Knapp, chief U.S. equity strategist at Barclays Capital.
Barclays projects a 15% earnings jump this year and a 9% increase in 2012; however, the firm lowered its S&P 500 year-end price range to 1325 from 1450 as a result of continued uncertainty and slowing earnings growth. The drop in business confidence due to the debt ceiling debacle, U.S. debt downgrade and the overall market decline has not diminished corporate investments, Knapp noted.
“Economic uncertainty, along with the political struggles in Washington and Brussels in dealing with structural and cyclical public-sector debt, have resulted in equity market valuations both on an absolute and relative basis that we consider attractive,” Knapp wrote in a research note, according to the Dow Jones report. [Stock ETFs Rally Before Jobs Report]
Knapp believes that the technology, industrials, materials and consumer discretionary sectors will rebound, whereas consumer staples and utilities will fall behind.
- SPDR Technology Select Sector Fund (NYSEArca: XLK)
- Vanguard Industrials Sector ETF (NYSEArca: VIS)
- SPDR Materials Select Sector Fund (NYSEArca: XLB)
- SPDR Consumer Discretionary Select Sector Fund (NYSEArca: XLY)
Still, Goldman Sachs analysts warn that there is little correlation between earnings and stock prices. The firm expects S&P 500 earnings growth to hit 14% this year while the market will still fall 5%, chief investment strategist, David Kostin, said.
“Unfortunately, the unstable macro environment is likely to persist for the foreseeable future because Europe currently lacks both the institutional structure and policy tools to solve the festering sovereign debt crisis,” Kostin added in a report.
SPDR S&P 500 ETF
For more information on the broader market, visit our S&P 500 category.
Max Chen contributed to this article.