As we enter the earnings season, many are expecting disappointing results. However, the overly pessimistic mindset may produce some surprises in the energy sector and related exchange traded funds.
Year-to-date, the Energy Select Sector SPDR (NYSEArca: XLE) fell 0.1, Vanguard Energy ETF (NYSEArca: VDE) dipped 0.5% and iShares U.S. Energy ETF (NYSEArca: IYE) declined 0.5%. The sector is technically still trading in a bear market after falling off over 20% since its June 2014 highs in response to the 50% plunge in oil prices. [Signs of a Return to Energy ETFs]
The majority consensus is that overall S&P 500 company earnings will be negative after the plunge in oil prices weighed on the energy sector and a strong U.S. dollar pressured multi-national companies’ overseas revenue, reports Maggie McGrath for Forbes.
According to BTIG analyst Dan Greenhaus, the overall earnings results could rise 2% if we were to ignore the energy sector.
However, market calls are still just predictions. In the end, actual results could surprise and look much better than expectations, potentially providing further momentum in a sideways trading market.
“Even though the forecast for S&P 500 EPS in Q1 is expected to decline 3%, history shows that actual results have been two to four percentage points higher that initial estimates,” S&P Capital IQ analyst Sam Stovall said in a recent note. “As a result, there is still a possibility that EPS will rise, thereby delaying the start of an EPS recession.”