We’re now right smack dab in the middle of earnings season, so today we wanted to highlight a couple of interesting sector trends we’ve recently identified.  Thanks to our Interactive Earnings Report Database, we have a list of every single quarterly earnings report for US stocks going back to 2001.  For each report, we know whether the stock beat or missed consensus earnings and revenue estimates and how the stocks performed.

Using our database, we track the rolling 3-month earnings beat rate for all US stocks.  This shows the percentage of companies that are beating consensus analyst earnings per share estimates over time.  We also track the rolling 3-month earnings beat rate by sector.

Below is a chart showing the rolling 3-month earnings beat rate for all US stocks compared to just Technology stocks.  As you can see, from 2002 through 2009, the earnings beat rate for Tech stocks generally tracked the beat rate for all stocks.  But during the current bull market that began in early 2009, we’ve seen Tech stocks separate from the pack when it comes to beating analyst earnings estimates.  Since 2014, the divergence has gotten even more prominent.  As of now, the rolling 3-month earnings beat rate for Tech stocks stands at 75%, while the beat rate for all stocks is just 60%.

You can see the spread between the beat rate for Tech and the beat rate for all stocks in the chart below.  Over the years, Tech stocks have gotten better and better than the rest of the market at beating analyst earnings estimates.  Whether that’s the result of legitimate strength for the sector (it has outperformed) or Tech accounting departments getting better and better at “beating the number” is a different story.  We honestly don’t know the answer, but it’s probably a little bit of both.

A counter example is the Industrials sector.  Below is the rolling 3-month earnings beat rate for Industrials stocks versus the 3-month beat rate for all stocks.  Unlike Tech, these two data series have been tracking each other very closely for the last 15 years.  If anything (as shown in the second chart), Industrials stocks have gotten worse at beating estimates.

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Today’s report on manufacturing in the Philadelphia region followed the trend of its sibling in New York and moved lower in April, posting a larger decline than expected.  While economists were expecting the headline index to retreat from March’s multi-month high of 32.8 down to 22.5, the actual reading was slightly lower at 22.0.  While both the Philly Fed and Empire Manufacturing reports declined this month, the Philly indicator still remains above levels it was at the end of 2016, even as the Empire Manufacturing report dropped to levels not seen since November.

Breadth in this month’s report was also relatively weak, confirming the decline we saw in the headline reading.  As shown in the table to the right, New Orders and Shipments both posted the largest declines, while the biggest increases came in Delivery Times and Inventories.

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This shouldn’t come as a surprise to anyone, but as the market has come under selling pressure in the last several days, bullish sentiment on the part of individual investors has declined.  According to the weekly AAII survey, bullish sentiment declined to 25.71% from 28.97%.  That’s the lowest weekly print since the election and a record 120th straight week of sub-50% readings.  Looking at the chart below, bullish sentiment has clearly broken its string of higher highs that had been in place since mid-2016.

As bullish sentiment has declined, bearish sentiment has seen a small uptick, rising from 37.38% up to 38.70%.  In this case, though, the chart of bearish sentiment doesn’t look nearly as significant as the chart of bullish sentiment shown above.

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