The earnings outlook continues to brighten. Approximately 85% of stocks in the S&P 500 have announced third-quarter results so far. Revenues have come in just 0.7% better than analysts expected, but earnings have come in a whopping 7% better than expected, writes Louis Navellier, Founder and Chairman of Navellier & Associates.
According to The Wall Street Journal, the S&P 500 is on track to post 3.7% annual third-quarter earnings growth, the strongest gain in the past five quarters. According to FactSet, the S&P 500’s revenues are on track to rise 2.3%.
The top sector is forecasted to be consumer discretionary, which is expected to post 40.9% annual earnings growth. Due to easier year-over-year comparisons, plus firmer crude oil and natural gas prices, the energy sector is anticipated to lead the S&P 500 sectors over the next three quarters.
The current stock market leader is Nvidia (NVDA), which will announce its third-quarter results later this month. To comply with the Biden Administration’s new chip restrictions on China, Nvidia will announce new AI and graphic chips for China.
The previous chips that Nvidia designed for China were recently banned by the Biden Administration’s new export restrictions. This upcoming announcement should help boost the entire chip sector, since it will remove much of the uncertainty surrounding these new Chinese export rules.
Probably the best example of how abruptly a previously hot sector can deteriorate is how EV sales have stalled for the Big 3 automakers, and even Tesla (TSLA). Some of this is due to Tesla’s aggressive price cuts, which have effectively destroyed the resale value of all EVs.
In fact, car dealers usually have to send used EVs to auctions immediately, since holding a used EV is problematic when prices are collapsing. Selling an EV is also problematic since the remaining battery life is uncertain. Dealers can’t know if an EV was frequently fully charged, which shortens lithium-ion battery life, so used EVs are almost as hard to sell as used cell phones.
The Wall Street Journal reported recently that Ford Motor (F) and Hyundai are providing $7,500 cash rebates on new EVs to fight this waning US demand. With the EV sector struggling, the Biden Administration’s pitch to onshore battery manufacturing has hit a major obstacle, as the Big 3 postpone their EV transitions.
Disclosure: Navellier & Associates, owns Nvidia Corp (NVDA) and Ford Motor (F) in managed accounts. A few accounts own Tesla (TSLA). Louis Navellier and his family personally own Nvidia Corp (NVDA), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account. He does not own Ford Motor Company (F) or Tesla (TSLA).