While energy companies are expected to be the largest contributor to earnings decline for the S&P 500 in the third quarter, the stabilizing crude oil prices and potential production cutbacks from major oil producers could help support sector-related exchange traded funds.
The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, will be under the spotlight over the next two days as ConocoPhillips (NYSE: COP) reports third quarter results before the bell Thursday and Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) report Friday before the open. XLE includes a 2.8% tilt toward COP, 17.5% XOM and 14.0% CVX.
The energy sector has been this year’s best performing area of the market, with XLE rising 17.8% year-to-date on rebounding crude oil prices.
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Analysts polled by FactSet anticipate ConocoPhillips will reveal adjusted quarterly loss of 66 cents per share, compared to the adjusted loss of 38 cents per share in the year-ago period, MarketWatch reports. Observers will be watching for any word of further dividend cuts.
The markets expects Chevron to see adjusted earnings of 39 cents per share, compared to $1.25 per share a year go. Market watchers will want to hear details on Chevron’s plan for its two large projects, including Wheatstone an Gorgon, in Australia.
Observers project Exxon will report adjusted earnings of 59 cents per share, compared to $1.01 per share in the third quarter of 2015. Investors will see if the integrated oil producer turned over a new leaf after an underwhelming second quarter.
[related_stories]The energy sector has produced lackluster earnings, contributing to overall earnings decline in the S&P 500.
“The Energy sector is also expected to be the largest contributor to the expected earnings decline for the entire S&P 500 for the third quarter,” John Butters, Senior Earnings Analyst for FactSet, said in a note. “If this sector is excluded, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) growth rate for the S&P 500 improves to 3.3% from -0.3%. The third quarter will likely mark the eighth straight quarter that the Energy sector has been the largest detractor to earnings growth for the S&P 500.”
However, Butters anticipates the energy sector will become a positive contributor to earnings growth for the S&P 500 by the first quarter of 2017 due to a combination of higher expected oil prices and easier comparisons to weak earnings in 2016.
For more information on the energy sector, visit our energy category.
Energy Select Sector SPDR