Fundamental momentum slowing for Cyclical sectors
For some time we have noted that traditional Cyclical and Value sectors have had much stronger earnings estimate revisions activity (“fundamental momentum”) than Growth or Defensive sectors. That has been changing recently as cyclical sector estimates are less strong than before, and Growth and Defensive are holding up better. Thus we have recently been looking more favorably on certain Growth or Defensive sectors and neutralizing exposure to Cyclical/Value areas.
Cyclical sectors still dominating globally on earnings trends
As we discussed in our last commentary, analysts continue to raise earnings estimates broadly as companies keep beating consensus expectations. Expectations of additional fiscal spending and ongoing easy monetary policy along with progress toward re-opening of the economy are key macro drivers, while certain sectors such as Energy and Financials which had been areas of weakness in pre-COVID and immediate post-COVID times are now contributing more positively to the earnings outlook. This is true in the US and also globally.