Sunday, October 14, 2018

Analysts Not Liking the Earnings Prospects for Financials and Materials, and That's a Good Thing!

Financials and materials are currently two of our top three sector weightings. As it turns out, Wall Street analysts are, on balance, presently not with us on those two picks. And, guess what, that's a good thing.

Short-term market sentiment indicators -- among individual investors and investment advisors in particular -- are among the most reliable contrary indicators. As it turns out, Wall Street analysts, while they may often be on-the-money when it comes to their earnings calls, fall firmly in the contrary indicator camp themselves, as the performance of their covered companies' stocks often flies right in the face of their earnings forecasts.

Per the top half of the first chart below, the Q3 earnings revision spreads (positive vs negative) for financials and materials do not inspire bullishness.

Well, again, that's a good thing, as, per the bottom half, it generally spells positive performance during the earnings season in question:

As for the other sector in our top 3, industrials, analysts, per the top half of the chart below, on balance, like its earnings prospects. Which, per the bottom half, is not good news for the next few weeks:

source: Bespoke Investment Group

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