Alcoa today will kick off the unnofical start of earnings season; giving us a picture of what to expect from the materials sector…nothing good I am sure. What sectors will take advantage of the current environment and lead the next rally forward? Or will one of these sectors disapoint to the degree that we retest 7500 with the blue chips? 

Energy

Prices have risen at the pump since companies last reported. However, that doesn’t have much of an impact on the bottom line as demand continues to be in neutral. Integrated energy and refining companies, those with both oil and natural gas businesses, are likely headed for a disappointing earnings season as refining margins and lower natural gas prices are expected to hamper second-quarter results.

Financials

Honestly, in this market anyone can run a successful and profitable bank. The discount rate is nonexistent, and high lending standards at or slightly above the prime rate creates an easy 5-6% spread. The banking system is highly frustrating in that regard as they lend out taxpayer money at a higher rate than they get it, when they decide to lend that is. The sector was the upside surprise that led the market higher last quarter, and their earnings should of even greater quality. Forward guidance on commercial property should be interesting. Among S&P 1500 financials, Standard & Poor’s sees an average profit of $2.21 a share vs. the prior year’s loss of 78 cents.

Automotives

I am not wasting my time…not only did you have bankruptcy filings by General Motors (GM) and Chrysler, parts supplier Lear can be added into the mix after yesterday.

Healthcare

The one thing everyone needs just happens to be ridiculously expensive and huge government and insurer spending in the sector helps smooth out the business cycle. The industry has rallied dramatically with all the health care reform proposals floating around on Capitol Hill. The street is definitely expecting big things from this group, one of the few.

Technology

The tech heavy Nasdaq has been the best performing of the three major indices. However I still find it hard to see major improvement in earnings conditions for a majority of these companies, yet the bar has been set very low so beating expectations may not be out of reach. A handful of technology companies have recently upped their numbers. Consumer sentiment is up, but spending remains down. The private sector is cutting and containing costs, laying off workers heavily 18 months after the start of the recession.