This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Earnings Season Shows Diverging Sector Trends

NEW YORK ( TheStreet) -- The S&P 500 pushed ahead with the benchmark index probing territory above 1690 for the first time in history. Two factors are propelling prices higher: Investors are re-aligning their positions for the increasingly likely continuation in Fed stimulus past the previously expected September reduction point.

The second factor is supportive corporate earnings, which have beaten market expectations in a majority of cases. From a macro perspective, additional bullish factors can be seen in the decision by the People's Bank of China to eliminate the floor in bank loan rates, which is positive for global sentiment. Taken together, these factors have supported stock values and sent the SPDR S&P 500 ETF Trust (SPY) to record highs near 170.

But while these factors are supportive for most stock sectors, there are some portions of the S&P 500 that are lagging on a relative basis, and this points to discouraging trends in specific industry groups. Significant earnings misses have already been seen in large-cap tech companies. If this does, in fact, point to disappointing trends in the tech sector it makes sense for investors focused on indices to favor instruments like the SPDR S&P 500 ETF Trust over options like the PowerShares QQQ Trust ETF (QQQ), which tracks the value of the tech-heavy Nasdaq.

Per-share earnings performances in companies in the S&P 500 have beaten analyst expectations in 73% of the reports released so far this season. On the revenue side, these companies have beaten analyst estimates 53% of the time. But last week we saw additional reports from tech companies that fail to match these positive trends. Last week's examples of this divergence can be found in positive results from General Electric (GE - Get Report), which were strong enough to take some of the negative attention away from Google (GOOG - Get Report) and Microsoft (MSFT - Get Report), where significant earnings misses were seen.

Strong quarterly results at GE were based on record order backlogs and heightened demand for drilling equipment and jet engines, and this sent the stock to its highest levels since 2008. Google, on the other hand, is seeing selling pressure as the consumer shift toward mobile devices is hurting the company's average advertising prices. Google's average cost-per-click dropped by 6% in the second quarter, as ad marketing continues to gravitate toward users of smart phones and tablets, rather than desktop PCs.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GOOG $646.67 0.00%
GE $28.09 0.00%
MSFT $47.00 0.00%
QQQ $106.79 0.00%
SPY $201.52 0.00%


Chart of I:DJI
DOW 17,131.86 +47.37 0.28%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,838.6430 +8.1730 0.17%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs