So far, 265 companies in the S&P500 have reported earnings and the year on year growth. These have been roughly in line with the price performance for cyclical sectors with some exceptions like the Industrials segment. Price performance of defensive sectors like Utilities and Telecom trailed despite positive earnings growth because of sequential improvement in GDP growth for the period.
In the second quarter however, Real Estate and Utilities shares have rebounded with the former being the best performing sector (excl. Energy), an indication of a phase transition in markets. The Real GDP growth of 2.84% YOY for the US last week further confirmed a possible mini-cycle peak due to higher base effects going forward and this is supported by slowing manufacturing PMIs. Furthermore corporations like Facebook and Amazon, which beat earnings expectations indicated slowing revenue growth, a further positive for defensive sector stocks.
As the US economy slows the FED will be focused on inflation, a lagging indicator, which is a sign that their proverbial rear view mirror is alive and well.
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