Sectors portfolio: Takeaways from earnings season
Takeaways from Earnings Season…
- At the time we’re writing this, just over 70% of firms in the S&P 500 have reported earnings for the second quarter. Of those, close to 80% of them have beaten earnings-per-share (EPS) expectations – which is slightly above the five-year average of 78%.
- The strength in earnings has led to a meaningful revision higher in EPS estimates for the present quarter. For instance, expectations for fiscal year earnings for the S&P 500 have moved from US$264.48 at the end of Q2 to US$267.27 – an increase of 1.05% over that time (according to estimates provided by Bloomberg). That’s not bad considering the broader macro backdrop of tariffs and a decelerating U.S. economy.
- The uptick in optimism has been paced by strong earnings growth in sectors like Communications, Technology and Financials. Of course, that speaks to the performance of some of the larger names in each of those sectors.
- Which leads us to a bit of a conundrum: while we are constructive given the fundamentals, we are very cautious given extant valuation as well as other factors (including seasonality and the trade backdrop).
- For instance, we continue to see upside in the Technology sector, but at over 32x price-to-forward-earnings, we’re likely to increase allocation only modestly. As another example, despite the increase in earnings expectations for this year, Health Care remains vulnerable given the adverse macro backdrop (including the possibility of pharmaceutical tariffs being levied by the U.S.).
- In our minds, we continue to like the barbell approach to sector allocation. We’ll pair overweight positions in pro-cyclical sectors like Tech, Communications and Financials with Utilities (a traditionally defensive sector).
- We’re cutting back on our exposure to Materials and Real Estate. The former is too vulnerable to the shift in the trade regime which is why we are downgrading it to an underweight position. The latter should benefit as the Federal Reserve re-starts its easing cycle this fall, but sustained performance will need the economic cycle to turn first.
Sectors we are overweight:
Chart 1 – Change in earnings expectations for 2025 by sector (year-over-year %)
Table 1 – BMO sector ETF portfolio for August
| Index | Sector Portfolio | Difference | Weighting | |
| S&P 500 | 100.00% | 100.00% | ||
| Tech | 34.16% | 38.50% | 4.34% | Overweight |
| Financials | 13.64% | 15.00% | 1.36% | Overweight |
| Comms. | 9.93% | 13.00% | 3.07% | Overweight |
| Health care | 8.79% | 5.00% | -3.79% | Underweight |
| Disc. | 10.34% | 9.50% | -0.84% | Neutral |
| Industrials | 8.57% | 6.00% | -2.57% | Underweight |
| Energy | 2.90% | 0.25% | -2.65% | Underweight |
| Materials | 1.84% | 0.25% | -1.59% | Underweight |
| Utilities | 2.45% | 5.00% | 2.55% | Overweight |
| Real estate | 2.01% | 2.50% | 0.49% | Neutral |
| Staples | 5.37% | 5.00% | -0.37% | Neutral |
Source: BMO Global Asset Management, August 2025. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 2 – BMO sector ETF portfolio weights relative to S&P 500
Chart 3 – Returns by sector
| Index | 50-day MAVG* | 100-day MAVG* | Returns (%) | ||||
| 5-day | Month-to-Date | Quarter-to-Date | Year-to-Date | ||||
| S&P 500 | 6349.33 | 6168.45 | 5879.46 | 0.16% | 0.16% | 2.33% | 7.95% |
| Tech | 5252.68 | 4929.73 | 4526.57 | 0.61% | 0.61% | 5.80% | 13.95% |
| Communications | 389.57 | 370.39 | 347.78 | 0.76% | 0.76% | 3.08% | 14.02% |
| Financials | 864.04 | 861.02 | 836.68 | -0.75% | -0.75% | -0.91% | 7.41% |
| Utilities | 435.84 | 418.03 | 408.87 | 0.17% | 0.17% | 5.07% | 13.22% |
| Real Estate | 260.65 | 262.28 | 259.19 | 0.29% | 0.29% | 0.13% | 1.85% |
| Discretionary | 1794.37 | 1755.71 | 1675.07 | -0.30% | -0.30% | 2.31% | -2.01% |
| Energy | 646.81 | 657.17 | 649.83 | -3.01% | -3.01% | -0.29% | -1.23% |
| Industrials | 1278.92 | 1249.20 | 1184.67 | -0.55% | -0.55% | 2.38% | 14.63% |
| Healthcare | 1521.85 | 1560.77 | 1579.23 | 0.23% | 0.23% | -3.22% | -5.17% |
| Staples | 898.93 | 894.73 | 892.10 | 2.79% | 2.79% | 0.20% | 5.30% |
| Materials | 558.41 | 560.77 | 544.52 | 0.93% | 0.93% | 0.42% | 5.41% |
*MAVG = moving average. Source: BMO Global Asset Management, Bloomberg, as of August 7, 2025. The 50/100 day moving average is calculated by averaging the closing prices of a stock or asset over the past 50/100 trading days, and is used by analysts to identify trends. Green = more bullish signal. Red = more bearish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Source: BMO Global Asset Management.
Chart 4 – Earnings and valuation
| Earnings | Forward P/E | ||||
| Expected (Y/Y%) | Last Month | Change (%) | Next 12m | Z-Score | |
| S&P 500 | 4.67% | 3.52% | 1.15% | 23.74 | 1.847 |
| Tech | 12.01% | 10.13% | 1.88% | 32.47 | 1.574 |
| Communications | 1.60% | 7.24% | -5.64% | 20.93 | 1.161 |
| Financials | 1.74% | 1.32% | 0.42% | 17.47 | 1.232 |
| Utilities | 2.33% | 2.41% | -0.08% | 19.69 | 1.348 |
| Real Estate | -1.60% | -0.56% | -1.04% | 20.30 | -0.176 |
| Discretionary | -2.14% | -3.77% | 1.63% | 29.93 | 0.827 |
| Energy | -4.60% | -8.02% | 3.42% | 16.65 | -0.178 |
| Industrials | 2.04% | 2.70% | -0.67% | 26.57 | 1.563 |
| Healthcare | 1.66% | 4.07% | -2.41% | 16.92 | 0.022 |
| Staples | 0.50% | -0.20% | 0.70% | 22.65 | 1.635 |
| Materials | 6.64% | 5.12% | 1.52% | 22.23 | 0.834 |
Source: BMO Global Asset Management/Bloomberg, as of August 7, 2025. Y/Y = year over year. P/E refers to Price-to-Earnings Ratio, which analysts use as a valuation metric. The forward P/E ratio (or forward price-to-earnings ratio) divides the current share price of a company by the estimated future (“forward”) earnings per share (EPS) of that company. Z-Score is a measure of how much a data point varies from the average of the entire data set. A positive z-score says the data point is above average. A negative z-score says the data point is below average. The closer the Z-score is to zero, the closer the value is to the mean. Green = more bullish signal. Red = more bearish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 5 – Seasonality Chart (Avg Rank Over Past 35 Years)
Chart 6 – BMO Global Asset Management quant model
For more market insights and commentary from BMO ETFs Strategist Bipan Rai, please visit and bookmark The Basis Point.
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Disclaimers:
For Advisor Use.
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The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
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