Consumer discretionary and financials dominated the S&P 500 last week as energy lags


Key points to remember:

  • Facebook runs a big group as mega-capitalized earnings this week
  • Winners and losers from last week’s sectors
  • Young and old alike, the dollar influences them all

This week is big for earnings, not only because of the big names in the reports, but because of the sheer number of earnings announcements. Investors can expect themes of rising costs and supply chain issues to continue.

According to FactSet data, 23% of S&P 500 companies released their third quarter earnings and 84% of them beat Wall Street expectations. Profits of S&P 500 companies are expected to rise more than 32% in the third quarter.

Kimberly-Clark (KMB) is down nearly 3% in pre-market trading after missing earnings estimates and lowering its remaining outlook for 2021. In a company statement, the cost concerns were specifically perpetuated by “significant inflation and supply chain” disruptions.

Outside of earnings information, Pinterest (PINS) fell nearly 15% before the bell after PayPal (PYPL) signaled it was not interested “at the moment” in acquiring the company . PayPal is up over 5% on the news.

Bloomberg reported this morning that whistleblower documents reveal Facebook (FB) is losing ground with teens and young adults. The title was down 1% in pre-market trading. Facebook is one of the S&P 500 mega-cap tech stocks that is posting earnings this week. Facebook, Microsoft (MSFT), Alphabet (GOOGL), Apple (APPL), and (AMZN) have a combined market capitalization that is roughly 25% of the S&P 500. So these earnings announcements can shake the market.

Citi analysts downgraded Carnival Cruise (CCL) to a “sell” rating. Analysts said there was very little benefit left for the company. The title was down 1.3% in pre-market.

Former President Donald Trump’s new SPAC Digital World (DWAC) acquisition is up more than 12% ahead of the opening. The company that has yet to launch a product rose 107% on Friday.

Sector summary from last week

The S&P 500 (SPX) rose nearly 2% last week, led by stocks in the consumer discretionary / cyclical and financials sectors. The S&P Consumer Discretionary Select Sector Index ($ IXY) and the S&P Financial Select Sector Index ($ IXM) both returned 3%. Zacks Equity Research has named Netflix (NFLX) as the star of the consumer discretionary sector. The stock rose more than 3.7% on the week despite falling 2.17% after better-than-expected earnings news on Tuesday. Netflix is ​​up almost 16% since the start of the year.

The real estate and health care sectors were the second best performers last week. The S&P Real Estate Select Sector Index ($ IXRE) and S&P Health Care Select Sector Index ($ IXV) returned 2.5% during the period. Anthem (ANTM) and Abbott Labs (ABT) were among the top health stocks after posting better-than-expected earnings. Stocks returned over 10% and 8% respectively for the week.

Despite rising oil prices and a lot of momentum, energy stocks lagged last week, as did industrial stocks. The S&P Energy Select Sector Index ($ IXE) rose only 0.43%, while the S&P Industrials Select Sector Index ($ IXI) rose only 0.1%. Although this is only a period of consolidation for the energy sector after being the best performing for the past three and six months, the industry continues to be among the worst performing sectors.

Comparative purchases: The consumer discretionary sector can be difficult to break down because it is such a large group with hundreds of stocks. Thusday, Yardeni research published its Performance 2021 S&P 500 Sectors and Industries report. When breaking down industry groups in the consumer discretionary sector, the report found that specialty stores and general merchandise stores were among the top performers at retail since the start of the year.

In the housing and auto groups, auto retailing, home improvement retailing and auto manufacturing led the way. The shortage of vehicles and auto parts has been a continuing story throughout 2021, and with the semiconductor shortage, it is likely that these groups will continue to struggle to meet the high demand.

Finally, the group of hotels, resorts and cruise lines began to recover in August. If COVID-19 cases continue to decline, consumers may be ready to leave the house and take a vacation. Airlines are already reporting sharp increases in bookings. After nearly two years of confinement, travelers may be ready to step outside and see more of the world.

When bigger is better: While all three major indices posted gains for the week, the Dow Jones Industrial Average ($ DJI) finished at an all time high. The Dow Jones is made up of just 30 blue chip stocks. A blue ship stock is a business considered a reliable investment because it is well established, stable and highly recognizable.

While it is debatable which stocks in the index actually fit the blue chip moniker, the index has benefited from some large companies reporting positive earnings. Tesla (TSLA), Procter & Gamble (PG) and American Express (AXP) all exceeded analysts’ expectations this week, which helped improve performance.

So far, many Dow companies have been able to absorb the rising costs and supply chain issues. It’s an advantage to be tall. Conversely, small caps often have less leeway to absorb costs. If inflation continues to rise, large companies such as the Dow Components could benefit.

Strong dollar supporting small caps: The Russel 2000 (RUT) is a small cap stock market index. For almost a whole year, the index has oscillated in a lateral trend. Recently, the strength of large and large cap stocks has caught the attention of investors. However, small cap stocks have yet to be sold. One of the reasons for the strength of this group is the strength of the US dollar.

A stronger dollar often benefits small caps as they tend to be less reliant on overseas sales. Large multinational companies generally find that a strong dollar makes their products more expensive for foreign consumers, which often results in fewer sales. Since hitting a low in June, the dollar has appreciated against a basket of currencies. Rising interest rates are helping to strengthen the dollar.

Small caps are in a strange situation because the stronger dollar helps them, but interest rates rise because of inflation and small cap stocks have a harder time absorbing the higher costs that come with it. inflation. So, for this group, this is no small feat.

TD Ameritrade® commentary for educational purposes only. SIPC member.


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