Stocks have performed well since the start of the fourth quarter with the S&P 500 posting a gain of nearly 7%. However, an ominous trend has emerged.
“The 11.4 to 1 negative-to-positive ratio of earnings forecasts sets the fourth quarter up as the most negative on record. So far 120 companies have issued outlooks. In a typical quarter, between 130 and 150 S&P 500 companies issue guidance,” reports Caroline Valetkevitch for Reuters.
Sectors that have been the worst offenders when it comes to fourth-quarter warnings include technology with 28 and consumer discretionary with 22, according to Reuters. Even with that, some of the largest exchange traded funds tracking those sectors have weathered the storm of profit warnings.
Since the start of the fourth quarter, the largest discretionary ETF, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) and the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) have gained 6.6% and 6%, respectively. That despite warnings from some retailers that this holiday shopping season will be weaker than expected. [Discretionary ETFs Could Find Coal This Holiday Season]
With a heavier emphasis on apparel retailers, which are among the offenders in terms of fourth-quarter warnings, the SPDR S&P Retail ETF (NYSEArca: XRT) has lagged its discretionary peers since the start of October, but XRT has still been able to muster a 4% gain. XRT allocates 27.6% of its weight to apparel retailers. [Consumer ETFs for Black Friday and Cyber Monday]
As for technology, the Technology Select Sector SPDR (NYSEArca: XLK) has surged 7.7% since the start of the fourth quarter. XLK has been boosted in part by its reputation for usually being the best of the nine SPDR ETFs in October. Then again, although it usually generates positive returns this month, it is the second-worst SPDR in December. [Embrace These Cyclical ETFs in December]