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Four Sectors to Watch Into Quarter's End


These players could have an electric effect on the broader market.


Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

Yesterday it was Texas Instruments (TXN). Today it was Home Depot (HD).

I expect companies to be raising guidance across the board in the next 2-3 weeks. Many analysts will be raising EPS estimates, price targets, and recommendations. All of this could have an electric effect on the market.

The meatiest sectors may have the most important upgrades.

1. Technology
The apparent turnaround in semiconductor activity foreshadowed by Texas Instruments and the price action in the entire sector is a good indicator that the whole technology space has seen an unexpected surge in activity. That will provoke some positive surprises.

2. Oil
Most analysts were using an oil price in the low $50s, and the average price for the quarter will probably come in over $60. Because of operating leverage, this could boost earnings estimates by 30% or more.

3. Financials
Capital-markets activity is rocking, so the investment banks should do better than expected. And both banks and investment banks should have a huge quarter on their proprietary portfolios. In addition, the massive rally in the corporate fixed-income and mortgage-security area will generate some write-ups for the banks, reversing earlier write-downs. The yield curve is a bit of a wildcard, depending on how it was managed, but the effect should be very positive for the big banks that have very cheap deposit bases. Overall, the surprises in bank earnings could be huge.

4. Consumer Staples/ Consumer Discretionary
Both sectors will probably also see major upside surprises.

As long as the rise in 10-year yields doesn't get out of control -- and economic numbers continue to come in constructive -- the broad market rally going into second-quarter earnings season could be very, very interesting.

To follow these themes readers should monitor QQQQ, XLE, XLF, XLY, XLP and TNX, and TLT.
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