Earnings Share of Super Sectors
Earnings Share of Super Sectors: staying with the topic of earnings and percentage shares, this chart shows the earnings share/weight of the 3 core “super sectors” of the S&P 500 $.SPX(.SPX)$ . And there are some very interesting cyclical and structural themes here.
First, I’ve grouped the main GICS sectors into “super sectors” to reflect previous changes in sector classifications and economic/market realities. They are: Defensives = Utilities, Consumer Staples, Healthcare; Tech (+tech related) = Information Technology, Communication Services (~45% Facebook $Meta Platforms, Inc.(META)$ & Google $Alphabet(GOOG)$ $Alphabet(GOOGL)$ ), Consumer Discretionary (~40% is AMZN $Amazon.com(AMZN)$ /TSLA $Tesla Motors(TSLA)$ ); Traditional Cyclicals = Industrials, Financials, Materials, Energy.
Structural Themes: Tech is the big story on the structural side; following the bursting of the dot com bubble tech’s earnings share crashed and stagnated for a decade. The post-financial crisis period saw traditional cyclicals go through a similar thing as financials got hit hard and commodity producers later suffered during the commodity bear… meanwhile the rise of tech and the actual new economy saw a structural uplift in tech earnings share (which is likely to be a longer-term feature, albeit with some cyclicality around that).
Cyclical Themes: on the cyclical front you can see the traditional cyclicals’ earnings share erode during economic downturns; and gain ground during economic booms. But perhaps more interesting (especially given how cheap defensives have become vs the rest of the market) is how defensives earnings share rises sharply during downturns — this is because their earnings tend to be more stable and reliable; hence why they are called defensive!
In terms of current takeaways, I think contrarians will point out how low the earnings share is of defensives at the moment — and how it tends to reach low points and troughs around market peaks. So certainly a bit of food for thought on this one…
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