The week of October 15 to October 19 is when third-quarter earnings will fly into hyper-drive. Endless numbers of America’s biggest and smallest companies communicating the most recent quarter and future guidance to their shareholders will be the focus of the markets for the next two to three weeks. Investors have been dealing with rising interest rates and a wave of profit-taking in equities ahead of the earnings season.

Despite the strong selling pressure of the week of October 12, Wall Street is generally looking for a solid performance on companies issuing earnings and guidance. The question to ask is whether this is all already priced into stocks after a nine-year bull market and with tax reform’s benefits already having been seen in prior reports.

While there has been a strong consumer, high consumer confidence and a strong economy, the reality is that waves of less optimistic economic numbers have been issued. And to make matters even more uncertain, the impact of tariffs and trade wars have only just started to be seen and the real exposure ultimately remains unknown while it has not been resolved.

24/7 Wall St. has come up with its own view on earnings season by sector, along with relative performance on the top exchange traded funds for those sectors. After our own previews, we also have shown what several top firms have issued to their clients regarding their own expectations coming into earnings season.

The 24/7 Wall St. views are not necessarily in any order or rankings. These also were shared with our morning email newsletter readers over the weekend and on Monday morning. We have shown performance along with color and commentary so that readers get a full synopsis rather than just some quick-hit views without any references.

Technology

Major momentum names have pulled back sharply, and the FANG stocks have effectively stopped leading the market higher. And semiconductor stocks and semiconductor earnings are still trending to weakness rather than strength. Now there is a new fear that China has infiltrated technology with tiny chips that can report back to “someone.” Then again, what if the selling has been overdone, particularly considering that investors often get excited about technology in the fourth quarter. And the ultimate reminder is that the new old tech is not the future technology, based on industry classification changes of many companies to communications services.

Technology Select Sector SPDR ETF (NYSE: XLK) may have bounced from last week’s lows, but that was after a sharp 10% sell-off over the course of a few trading days just in October. The ETF is still up just over 10% so far in 2018, but it is down almost 4% over the past week and down over 5.5% in the past month. The top names in the fund include tech giants such as Apple, Microsoft, Cisco and Intel.

Energy

Oil and gas should have stood to benefit from the recent return to higher oil prices. The long-standing floor that was in on oil services and exploration firms was been followed by a recent wave of analysts raising their ratings or price targets. That said, NYMEX oil slid from $75 a barrel last week to about $71 as of Monday. Unfortunately, the stock selling and oil sell-off last week knocked the wind out of the oil and gas stocks. Still, these shares remain down substantially from their 52-week highs and compared with their multiyear highs.

There are two key oil and gas ETFs. The Energy Select Sector SPDR ETF (NYSE: XLE) is up just 1% so far in 2018, but it is down over 5% in the past week and down over 1% in the past month. The VanEck Vectors Oil Services ETF (NYSE: OIH) is down almost 7% so far in 2018, and the recent gains have turned into losses after falling 5.5% in the past week, despite being up 0.5% over the past month. Both ETFs had traded up handily since early September and were looking like breakout winners before the most recent slide in oil and the stock market.

Pharma and Biotech

Catalysts may have to go beyond “just revenues” at this point. Pharma stocks have failed to generate much excitement during much of the big bull market, but selective biotech names have been on fire in 2018. Before last week’s selling pressure in the market, there had 22 “biotechs” in a Finviz screen that are down over 80% year to date in 2018, followed by 35 biotechs that had gains of 100% to 400% in 2018 alone.

iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) is still up 4% so far in 2018, but that is after a drop of 4.5% in the past week. Its shares are down 6% over the past month. Top names in the ETF are Amgen, Gilead Sciences, Biogen, Celgene and Illumina.

Utilities

Utilities have been whipped around, with rising long-term interest rates acting as a negative. Then the stock market selling started turning investors defensive again, and they often hide out in utilities during periods of uncertainty. Interestingly enough, investors can now score comparable yields in long-dated Treasuries without the risk of the stock market. That said, there were recently 35 utilities that have over $10 billion in market caps, and the performance has been quite mixed.

The Utilities Select Sector SPDR ETF (NYSE: XLU) was last seen up only 0.5% so far in 2018, but that is after a drop of more than 1% over the past week and a drop of 3% from the peak in September. The top six components account for 42% of the weight, with the top companies making up this ETF being NextEra, Duke Energy, Dominion, Southern, Exelon, and American Electric Power.

Financials

Rising interest rates should be good for banks and financials in general. That said, the actual third-quarter results might be a very mixed bag because the recent rate rises really have come only at the end of the third quarter and over the past week. The last interest rate hike from the Federal Reserve was also days before the quarter-end cut-off date for earnings. And we have now seen earnings from Bank of America, JPMorgan Chase and Wells Fargo that so far have been meeting calls suggesting that they are somewhere between “good enough” and “peak cycle.”

The Financial Select Sector SPDR ETF (NYSE: XLF) took it on the chin during the sell-off. It was down 5.6% in a week and down by roughly the same over the past month. Year to date, the ETF was down 5.3%. The ETF’s top five holdings make up about 45% of its entire weighting, and the top 10 holdings are Berkshire Hathaway, JPMorgan, Bank of America, Wells Fargo, Citigroup, U.S. Bancorp, Goldman Sachs, American Express, CME Group and Charles Schwab.

Homebuilders and Housing

Homebuilder stocks have been atrocious, and housing prices have started seeing decreases. This lines up badly for many housing names, and mortgage rates have hit the highest levels in several years. All this is turning into a slowdown in the housing market. There are two homebuilder ETFs and they are vastly different in their compositions.

iShares US Home Construction ETF (NYSE: ITB) is down over 26% so far in 2018, and that is after a drop of more than 5% over the past week and 15% over the past month. This ETF’s top stock holdings are D.R. Horton, Lennar, NVR, PulteGroup, Home Depot, Toll Brothers, Lowe’s and Sherwin-Williams.

SPDR S&P Homebuilders ETF (NYSE: XHB) is down 21% so far in 2018, and that’s after a 6% drop over the past week and a drop of 13% from a month ago. Its top holdings are Lowe’s, Home Depot, D.R. Horton, Williams-Sonoma, Whirlpool, Masco, Fortune Brands Home & Security, Mohawk Industries, NVR and Johnson Controls.

Retail

Retail earnings will be released mainly in November due to the one-month lag in the fiscal reporting to account for that holiday surge. Looking forward, September was a disappointing figure in retail sales but the forecast remains that the November and December holiday seasons should be good for brick-and-mortar and for anything in e-commerce. Many retailers (except laggards like Pier 1) have seen their shares rise handily from the bottom over the past year.

SPDR S&P Retail ETF (NYSE: XRT) was down about 2% in the trailing five days and more than 8% lower over the past month. That said, the gains earlier in 2018 were massive as this ETF is still up 5% so far in 2018 and up almost 20% from a year ago, when retail was falling victim to Amazon daily. The fund has a strange composition that is not dominated by the companies you might expect. Its top 10 holdings are L Brands, Camping World, Foot Locker, Nutrisystem, Walgreens, AutoZone, Children’s Place, Big Lots, Sally Beauty and Supervalu.

As far as outside views on earnings season and the expectations, some firms that should be quite well known have shared their thoughts.

Credit Suisse’s U.S. Equity Strategy preview pegged consensus expectations for EPS growth at 21% from a year ago, and the analyst noted that a typical beat rate of 3.5% to 4.0% would bring this growth to 24% to 25%. Taxes are expected to add 7% to 8% to EPS, and excluding tax benefits they should come in 16% to 18%. The firm believes that earnings growth will be led by energy and financials.

CFRA (S&P) noted that the stage was set for the most recent quarter to be the third consecutive one of bottom-line growth above 20%, a run of which has not achieved since 2010 when the market was rebounding from the financial crisis. The solid record of growth this time will be driven by tax reform and fiscal stimulus that aided in returning sales growth to double digits and helped drive margin expansion. When factoring in buybacks, bottom-line EPS growth has been significantly better than expected at the start of the year. Still, there was a warning here for some uber-bulls:

Over the past seven quarters, strong market performance in the month to two months prior to the start of the reporting period results in muted performance for the market the month after companies begin announcing earnings.

Merrill Lynch sees a modest beating trend on earnings expectations, but it further sees more upside from the companies that surprise positively to the upside on earnings and guidance. The firm sees EPS in the S&P 500 up 23% but with sales growth slated to decelerate to +7% from a year ago. The analyst also noted that guidance turned weak in September, with a low number of guidance instances.

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