Mixed Earnings Will Increase Sector Rotation
The mixed earnings numbers seen will likely further increase the sector rotation as investors move from high flying momentum stocks to companies that will show strong growth in a low interest rate environment. Googles (NASDAQ:GOOG) miss on the top and bottom lines will likely have investors looking away from large cap technology and into industrials as both GE (NYSE:GE) , and DuPont (NYSE:DD) beat on the top and bottom line.
This earnings season seems to be mixed once again, but more companies are hitting on reduced expectations for earnings. For example, Goldman Sachs (NYSE:GS) on Thursday reported Q1 earnings of $4.02 per share, down from $4.29 a share in the year-earlier period. Although revenue decreased to $9.33 billion from $10.09 billion a year ago, analysts had expected the company to report earnings of $3.45 a share on $8.70 billion in revenue.
Goldman’s chief rival, also beat the streets estimates. Morgan Stanley (NYSE:MS) reported Q1 earnings from continuing operations of 72 cents per share, up from 61 cents a share in the year-earlier period. Revenue increased to $8.9 billion from $8.48 billion a year ago. Analysts had expected the company to report earnings of 59 cents a share on $8.52 billion in revenue.
The revenue beats at the large investment banks are a good sign, but it is a far cry from the disappointment of IBM and Google missing on both top and bottom lines. IBM missed for a second consecutive quarter, disappointing large tech investors.
The robust numbers reported by GS and MS are likely to give a boost to the NYSE:XLF (financial spider ETF) on Thursday after the ETF closed above resistance near its 50-day moving average. The next levels of target support for the financials are the April highs near $22.50. Support is seen near former resistance at $21.81.
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