Insights from the Q2 Earnings Season

Looking across the performance landscape

As observed from the data, on a year-over-year basis, the performance of most sectors has materially improved in contrast to their Q2-2022 performance. While the performance of the technology, communication, and consumer discretionary sectors continue to be the pillars upon which the current US equity performance relies on, the decline in Q1 2023-to-Q2 2023 performance is noteworthy, particularly for the Technology (-6.21%) and Communication (-8.76%) sectors.  

As noted in a previous article, the tech sector's performance continues to be driven by a select few firms. However, other sectors are exhibiting moderately strong performance, which may indicate the strengthening of the US economy. As noted in FactSet’s reporting, for the Consumer Discretionary sector, there were upward revisions to revenue estimates and positive revenue surprises reported by Ford Motor (to $44.95 billion from $42.64 billion) and General Motors (to $44.75 billion from $41.06 billion), and the positive revenue surprises reported by Amazon.com ($134.38 billion vs. $129.47 billion) and D.R. Horton ($9.73 billion vs. $8.27 billion). As inflation continues to decline from its previous highs, the purchasing power of households is acclimating to bettering economic conditions. 

The Health Care Select Sector SPDR ETF (Ticker: XLV) which had a quarter-over-quarter performance increase of 7.25%, saw positive revenue surprises reported by McKesson (to $74.48 billion from $70.28 billion), AmerisourceBergen (to $66.95 billion from $63.93 billion), CVS Health ($88.92 billion vs. $86.53 billion), UnitedHealth Group (to $92.90 billion from $90.97 billion), and Elevance Health ($43.38 billion vs. $41.64 billion) positively contributed to the S&P 500 index performance. 

The Financial Select Sector SPDR ETF (Ticker: XLF) exhibited the strongest quarter-to-quarter swing in performance (10.85%) following the regional banking distress in Q1-2023. However, with the recent Moody’s downgrade due to heightened funding costs, dwindling loan growth, and profitability strains, this sector should be looked at intently by interested investors. As noted in a recent news report from CNBC, Fitch Ratings may also be forced to downgrade banks' credit rating.

As investors look towards Q3-2023, the observed performance and overarching value proposition of some established companies and industries will make specific sectors a core to one’s portfolio. However, as new macroeconomic developments occur both domestically and internationally, it is important to understand the impact these developments may have on a sector and how best to manage or capitalize on it going forward.  

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.