So far, based on a very small and unrepresentative sample, Tech appears to be the winner. It has a median year-over-year growth rate of 14.3% and has seen three positive surprises and only one disappointment.
The Consumer Sectors are also doing very well. Consumer Discretionary is showing double-digit growth at 10.6% and positive surprises edging out disappointments by 5:4. Consumer Staples is falling just short of double digits at 9.5%, but has the highest median surprise at 4.7%.
The vast majority of firms have not even finished the quarter, let along reported the results. The standings among the sectors should change significantly as more results come in. Based on the expectations for the firms yet to report, Tech and Staples should maintain their relatively good standings, but trail Health Care and Industrials. While Consumer Discretionary should slip down the leader board. Utilities and Financials are expected to bring up the rear of the earnings parade.
The median expected growth rate for those yet to report is 9.0%. Though forecast calls for the weakest growth in over five years, it is above the current showing. Given the fears out in the market, even that would not exactly be the end of the world. With a normal ratio of positive surprises to disappointments, it is within range of yet another quarter of double-digit year-over-year growth. If so, it would mark the 21st straight quarter of double-digit median growth. However, so far we have not been seeing the normal 3:1 ratio of positive to negative surprises, the ratio is currently less than half that level.
The Zacks "Revisions Ratio"
To help gauge the direction of the market, we take note of what analysts are thinking. By tallying their EPS changes, we can determine our "revisions ratio". This ratio simply divides the total number of positive estimate revisions by the total number of estimate cuts. Thus, a high ratio is a bullish indicator and a low ratio is bearish. For the S&P 500 as a whole, a number below 0.80 or above 1.25 is generally significant. For individual sectors the distance from 1.0 should be greater for the numbers to be significant.
Over the last four weeks, there were 503 upward EPS revisions and 674 downward, for 1,177 revisions total. This was a 10% increase in total revisions from last week. Estimate revision activity will pick up again during the third-quarter earnings season in early October, and by Halloween will probably peak at over three times the current level.
The revisions ratios were above 1.0 for only three sectors. Only Tech and Utilities had significantly more upward revisions than cuts, while Consumer Staples had a small plurality of increases. Five sectors had more than twice as many cuts as increases. The Financial Services sector, which should be the sector most directly affected by the trouble in mortgageland, continues to be the weakest sector
| Avg. 4wk EPSChange (FY07) | Avg. 4wk EPS Change (FY07) | Revisions Ratio | Firms With FY07 EPS Increase | Firms With FY07 EPS Decrease |
| Technology | 6.42% | 2.61 | 25 | 32 |
| Utilities | -0.03% | 1.75 | 14 | 9 |
| Consumer Staple | -0.17% | 1.14 | 19 | 14 |
| Consumer Disc | -0.68% | 0.90 | 35 | 35 |
| Materials | -0.01% | 0.69 | 11 | 15 |
| Energy | -0.28% | 0.47 | 11 | 19 |
| Health Care | 0.01% | 0.47 | 15 | 20 |
| Telecom | -0.25% | 0.45 | 2 | 5 |
| Industrials | -0.37% | 0.39 | 20 | 25 |
| Financial Services | -1.35% | 0.38 | 36 | 49 |
| S&P 500 | 0.59% | 0.79 | 199 | 214 |
ETFs to watch into earnings for upside reaction: XLK, QQQQ, QLD, SMH, XLU
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