YEAR-END SECTOR PERSPECTIVE

There are no shortcuts to easy profits in the global economy, but at least there’s perspective. That includes freshly minted number crunching from Zacks this week that deconstructs S&P 500 earnings by sector. As we fade into our final remarks for 2005 and prepare for some year-end revelry, we leave you with best wishes for 2006 and a few market tidbits from the Zacks analysis to chew on as you sip grog over the holiday and ponder what comes next.
* S&P 500’s total earnings are predicted to rise 10.8% for 2005 and 13.3% in 2006.
* Materials and consumer Staples are the only two of the S&P 500’s ten sectors that are expected to post a higher pace of increase in median earnings in 2006 vs. 2005.
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* The energy sector–which delivered by far the biggest percentage increase in earnings in 2005 among the ten S&P 500 sectors–is on track to deliver slower earnings growth in 2006. Even so, the improvement will be robust nonetheless, advancing by a predicted 23.3% next year, down from 69.3% this year. The 2006 earnings forecast for energy, although much slower than 2005’s advance, is still the highest expected percentage rise among the ten S&P 500 sectors, based on Wall Street estimates. The primary engine of that growth will come from the smaller energy firms next year, or so we’re told, namely, the drillers and lesser oil service operations as opposed to the behemoths such as Exxon Mobil and Chevron.
* The financials still carry the biggest market-cap weight in the S&P 500, reaching nearly 21%. That’s more than consumer discretionary, utilities, materials and telecom combined, Zacks advises. Financials “deserve to be the biggest influence on the market, since they contribute 25.4% of the total expected earnings for 2006, or more than the total earnings of the Tech, Industrial and Materials sectors combined,” the firm opines.
* Energy appears to be “under represented,” Zacks notes, based on expectations that the sector will contribute 13.6% of S&P 500 earnings next year while energy’s market cap represents just 9.4% of the benchmark.
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* Earnings estimate cuts for 2005 in S&P 500 sectors have been concentrated in financial, health care and consumer discretionary.
With all this talk of sectors, how have the relevant ETFs fared this year? Since you asked…
(2005 total returns through Dec. 28 via SectorSPDR.com)
Energy (XLE): 39.2%
Utilities (XLU) 13.4
Healthcare (XLV) 6.1
Financials (XLF) 4.3
Materials (XLB) 2.9
Consumer staples (XLP) 2.0
Industrials (XLI) 1.7
Technology (XLK) 0.2
Consumer discretionary (XLY) -6.9
S&P 500: 3.8

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