The energy sector’s problems seem to be a sector specific issue as opposed to a broader macroeconomic problem. For example, Asia’s coronavirus outbreak and the economic shock it’s causing has crushed energy commodities such as crude oil. This in turn has spread to energy stocks, which are suffering.
Aside from the Energy Select Sector SPDR Fund (XLE), which has declined 9.5% year-to-date, bullish sentiment and price action in most S&P 500 industry groups is outnumbering the bears.
Earnings Momentum
Are corporate earnings confirming the stock market’s upward movement?
For the most part, fourth quarter 2019 corporate earnings for U.S. companies within the S&P 500 has been solid. Through the first week of February, reported earnings have been 4.6% above analysts’ estimates, according to FactSet. Moreover, 71% of companires are reporting earnings per share above estimates.
Sector wise, all S&P 500 industry groups have reported fourth-quarter earnings above estimates, led by technology (89%), communication services (83%) and health care (79%).
Summary
Looking ahead, what will be the coronavirus’ impact on future corporate earnings? And will more companies join the S&P 500’s rally? Just four stocks – Apple, Alphabet, Amazon.com and Microsoft – account for 67% of the S&P 500’s year-to-date return through February 7, according to DataTrek Research.
Despite these obstacles, the momentum in U.S. stocks, at least for now, is bullish from multiple angles. The majority of S&P 500 industry sectors are up, with momentum stocks leading the broader market higher. Moreover, the latest quarterly corporate earnings are also strong.
Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”