Nevermind how consumer-based spending during the holiday season will improve corporate earnings this quarter, the real marks of profit growth for the fourth quarter and 2016 will lie in the energy and tech sector.
Even with the buzz of Black Friday and Cyber Monday and the significance of the consumer-based economy, consumer staples and consumer discretionary stocks are predicted to contribute less to S&P 500 profit increase in the fourth quarter compared with the previous quarter, according to chief market strategist at Convergex, Nicholas Colas.
The real changes to watch out for in the fourth quarter and into next year will be the energy and tech sector.
Throughout 2015, the energy sector has dragged general S&P 500 profits into a year-on-year quarterly decrease, but the fourth quarter may really be the first of 2015 where the energy sector adds to those general profits instead of subtracting from them.
Persistent strong performance from the tech sector is also vital to a fourth-quarter turnaround. In 2014, the contribution of the tech sector to S&P 500 profits moved from the third quarter into the fourth quarter, and that will have to occur again. Tech earnings accounted 17% of S&P 500 profits during the third quarter and 25% in the fourth. In 2015, tech accounted for 20.9% of third quarter profits on the index, and that is predicted to increase to 24.1% in the fourth quarter.
The tech sector has to come through with its predicted profit boost from corporate and Q4 consumer spending. As much as it is a useful substitute for one piece of the technology profit pie, holiday spending plays no actual role in the other earnings drivers.