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Sectors: Which Will Lead, Lag in 2nd Quarter?

As we head into the last full week of the first quarter, analysts’ earnings estimates point to a sharp divide about to arise in this year-old, broad-based bull market. There are exactly five sectors where the analysts that cover those member companies have, on average, raised their earnings estimates during the last month and exactly five sectors where the analysts have negatively revised their consensus estimates, according to research firm Bespoke Investment Group.

“While overall earnings revisions are positive for the S&P 1500 Index, there are wide disparities between individual sectors,” wrote Bespoke analysts, in the just released report to clients. They calculate their “revisions ratios” by taking the net number between companies with positive and negative estimate revisions and then dividing that figure by the number of companies in the sector.

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  • Technology has the most positive ratio, according to Bespoke, with analysts ratcheting up consensus first quarter numbers for 27 percent of the companies in that group, including National Semiconductor, Texas Instruments and Sandisk. Consumer discretionary has the second highest ratio, as analysts increased numbers for 23 percent of the group, led by American Eagle, Aeropostale and Family Dollar. Analysts are also more enthusiastic about consumer staples, industrials and raw materials, according to the report.

    Telecom, with a negative 32 percent ‘revisions ratio’ will report the worst first quarter results, while utilities will be second worst, with 18 percent of the group’s companies seeing numbers taken down by analysts. Analysts lowered financials, energy and health care companies.


    If the sentiment of these revisions match the actual first-quarter numbers, and the subsequent forecasts, from companies, not every industry will be able to keep going up like they have the last 12 months. The S&P 500 is up 50% over the last one year, with every major sector in the index up by at least ten percent. Over the last three months, only the S&P Utilities ETF is lower.

    Analysts’ estimates matter more than ever heading into this earnings season, which unofficially begins with Alcoa’s report on April 12, because of a dearth of warnings from companies into the quarter-end, according to investors.

    “This is one of the lightest pre-releases quarters in terms of earnings expectations that we have seen in a couple of years,” said Gary Kaminsky, who used to manage $13 billion for Neuberger Berman and is now a regular contributor to ‘Fast Money’. “After a tremendous bounce back there are times that are just not clear and right now it’s not clear.”

    For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC. To play Fast Money’s bracket challenge, go to fastmadness.cnbc.com.

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    Trader disclosure: On March 19, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Grasso Owns (AAPL); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE) ; Finerman's Firm Is Short (SPY), (IYR), (MDY), (IJR); Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred ; Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (QCOM); Finerman's Firm OWns (RIG); Najarian Owns (AA) Calls; Najarian Owns (BAC) Call Spread; Najarian Owns (C) Calls; Najarian Owns (INTC) Calls; Najarian Owns (TEVA); Najarian Owns (UNH) Call Spread; Terranova Owns (QCOM), (TER); Terranova Is Short (CAL), (UAUA), (AMR), (GS)

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