Sector ETFs to Watch in This Earnings Season

The so-called earnings recession may have extended over the first quarter. Nevertheless, exchange traded fund investors may still find opportunities in some sectors that continue to grow.

Capital IQ aggregate first quarter 2016 S&P 500 earnings-per-share are estimated to be $26.37, or a 7.5% decline year-over-year, compared to a 4.2% decrease for Q4 2015, Sam Stovall, U.S. Equity Strategist for S&P Global Market Intelligence, said in a research note.

Moreover, the earnings dip over the first quarter represents the first time since 2009 that the S&P 500 experienced a year-over-year earnings decline in three consecutive quarters, adding to worries of an extended earnings recession U.S. equities.

Nevertheless, investors may still find opportunities in sector-specific ETFs, including the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), Vanguard Telecommunication Services ETF (NYSEArca: VOX) and Health Care Select Sector SPDR (NYSEArca: XLV).

Stovall estimates that only three of the 10 S&P sectors are expected to post positive earnings growth over the first three months, with consumer discretionary showing +11.4%, telecommunications +5.2% and healthcare +2.9%.

Strengthening macroeconomic indicators, rising consumer confidence and low interest rates on loans have supported the consumer discretionary sector, according to Stovall. Moreover, low gasoline prices also put more cash into consumers’ pockets.


S&P Global Market Intelligence believes the telecom sector is expanding on modest U.S. economic growth and a stimulative interest-rate environment – the ongoing low-yields help push investors to yield-generating assets like telecom.