As the third-quarter earnings season kicks off, one analyst examined the sectors anticipated to perform well and those likely to be left in the dust.

The Data: Scotiabank analyst Hugo Ste-Marie previewed third-quarter earnings in a note published Wednesday.

The analyst believes that earnings will “nosedive” in a temporary blip, while also saying that investors will punish earnings misses less this quarter than last quarter.

The S&P 500, tracked by SPDR S&P 500 ETF Trust (NYSE:SPY), is expected to register a modest 0.5% earnings growth quarter over quarter and 3.9% on the year. The latter figure came in at a much higher 12% last quarter.

“After a huge run-up in equity prices, investors will likely scrutinize Q3 numbers and earnings guidance, which could lead to sharp reactions if they are not pleased,” Ste-Marie said. “Still, the Q3 earnings bar has been reduced since June, and given that economic activity remains robust, another earnings beat could be around the corner.”

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The analyst also noted that this quarter’s earnings will serve as another proxy for consumer spending health.

“Similar to last quarter, we will continue to watch some key bellwether consumer stocks and banks to spot any change in consumer behavior or, rather, more visible cracks in consumer spending/bad loans,” Ste-Marie said. “When we look at high-frequency data, such as the Johnson Redbook index, which is tracking weekly retail sales, spending remains overall healthy (while the discount category performs well, department stores sales are struggling).”

Additionally, earnings could provide key information on the impact of Hurricanes Helene and Milton.

Sector by Sector: The top projected sector is technology, with the analyst anticipating a 15% increase in earnings year over year. Communications and healthcare are also expected to be top performers.

Conversely, the energy sector is projected to experience a 24% decline in profits year over year, with materials also expected to show a reduction in profits.

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Image created using artificial intelligence via Midjourney.