The Investor-Loved Sector You Should Be Watching This Earnings Season

The Investor-Loved Sector You Should Be Watching This Earnings Season
Paul Allison, CFA

11 months ago2 mins

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The first three months of this year have sure felt volatile, but earnings season will give you the chance to really dig into the details and kick your portfolio’s tires. This time around, data analytics firm FactSet says analysts expect S&P 500 firms to report a 6.6% drop in first-quarter earnings-per-share (EPS) versus last year. Mind you, they reckon revenue at those firms will have edged 1.2% higher, indicating a tight squeeze on margins.

Thing is, quarterly results are backward-looking – and in investing, you’ll be more concerned about the future. So check out the chart above: it shows analyst forecasts, as of March 31st, for each sector’s EPS growth in 2023 (blue bars), and compares them to forecasts from the end of last year (gray bars). Looking at the S&P 500 overall, analysts expect 2023 earnings to inch higher by 1.5%. Bear in mind, though, that those forecasts will change as companies unveil their own updated targets during earnings season. And since those updates might impact the market’s direction, you’ll want to keep an eye out for FactSet’s earnings insight reports for all the latest stats.

Now, if this earnings season is anything like the last few, you’ll want to keep an eye on one particular sector. Take another look at that chart – specifically at technology stocks, which make up more than 25% of the S&P 500. It shows that analysts expect the tech sector’s EPS to slip 0.5% this year from last, but the tech-heavy Nasdaq 100 is up nearly 20% this year and outperforming most major global indexes. That could be a problem: the index’s all-star performance suggests investors have higher hopes for tech firms this year than analysts do – and if companies’ outlooks don’t live up to those lofty expectations, stock prices could take a tumble.



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