As we close out the third quarter of 2014, we analyze the past quarter and look forward to the fourth quarter and 2015.  Analyzing the top sectors and performances of the past quarter can help determine a risk profile of the markets and therefore, a more proper strategy moving forward.  Goldman Sachs Group Inc (NYSE:GS) releases quarterly review documents that gives reviews and projections on the outlook of the markets and earnings growth.

3Q Earnings

3Q earnings: Health care stocks performed the best during the quarter

After three quarters into 2014, health care stocks continue to be some of the best performing stocks in the markets, as they have been top performers over the past several years.  Utilities are also outperforming and continuing to see a stable run this year.  Year to date, health care stocks have risen 16.60%, utilities have risen 13.90%, and the S&P 500 is up only about 8.30%.  As you can tell, these defensive sectors are outperforming the broader market and certainly is revealing into minds of investors who are still looking for yield and safety, rather than riskier equities.  However, we did see outperformance from two cyclical sectors: information technology and materials.  Lead by the Home Entertainment Software industry (up 55.20%), information technology sector is up 14.10% and materials are just barely beating broader market at 8.90%.  Despite some cyclical sectors achieving some decent performance, defensive stocks continue to be the “go-to” choice for investors.

3Q Earnings

Goldman sees a broader market rally intact for the next year

Turning to S&P 500 outlook, Goldman Sachs Group Inc (NYSE:GS) continues to see the uptrend intact.  As of the release of the documents, the S&P 500 stood at 1966, Goldman has put a 3 month forecast target of 2050, or up 4%.  Their 6 month outlook forecast is at 2075, up 6% and full year forecast is at 2150, or up 9%.  The bottom line here is that Goldman still sees the broader market rally intact for the next year.  The top sectors Goldman recommends that investors be overweight in are consumer discretionary, industrials and information technology.  Their neutral rated sectors are energy, financials, health care, and materials.  Their least recommended or underweight sectors are consumer staples, utilities, and telecom services.  Thematic trade recommendations show that Goldman Sachs is bullish US and bearish Europe, as they recommend buying “domestic revenues” and sell “Western Europe revenues”.  Additionally, the investment bank recommends dual beta stocks and selling S&P 500.  Lastly, in the thematic trade recommendations, Goldman recommends buying weak balance sheets and selling strong balance sheets.

3Q Earnings

3Q Earnings

S&P 500 3Q earnings per share is at $29.30

As the majority of 3Q earnings have been released, we notice a few trends.  According to Goldman Sachs Group Inc (NYSE:GS)’s US Equity Views document from October 24, 2014, the S&P 500 3Q EPS is at $29.30, or 1% above projected estimated results.  Energy is seeing a rash of downside guidance, as energy prices continue to fall.  Sales and margins are slightly below expectations, broadly, expected so far this quarter and 4Q guidance is slightly more negative than usually seen.  However, overall, S&P 500 earnings per share are up 9% year over year, from 3Q 2013.

3Q Earnings

3Q Earnings

Overall, it has not been an eye-popping quarter for broader stocks, as the S&P 500 only rose 1% during the quarter.  Earnings growth did pop 9% from a year ago, but defensive equities still remain in demand, as tensions around the world continue to be in focus, Ebola, rising rates within next year, weak data from Europe, etc.  Investors certainly have some worries coming up, but so far the rally still remains.

3Q Earnings

Disclosure: None