Wells Slashes Earnings Outlook on S&P 500 (SPY) (XLP) (IYZ) (XLK)

S&P 500 companies beat expectation for EPS growth in the second quarter but the underlying details suggest earnings are weak and getting weaker, noted a report today by analysts at Wells Fargo.

The report was spearheaded by Senior Analyst Gina Martin Adams. She believes second quarter earnings sent investors a warning shot, and she is using the recent price moves in the S&P 500 as an opportunity to get more defensive.

“Recent deterioration in economic data pressures our estimates for EPS growth in the second half of 2012 and early 2013,” said Adams. “A reduction to earnings expectations for energy and materials is predominantly responsible for the downward revision to our estimate for index earnings in the second half of 2012. Deterioration in leading indicators adds pressure to our 2013 estimate.”

Wells Fargo reduced their EPS estimates on the S&P 500 to $101 (from $102) for 2012 and $104 (from $107.)

In terms of sectors, Well analysts upgraded staples to Overweight from Marketweight. They also upgraded telecom to Marketweight from Underweight. Technology was downgraded to Marketweight.

Wells Fargo’s call might affect the following ETFs.

SPDR S&P 500 ETF (NYSE: SPY)

Consumer Staples Select Sector SPDR (NYSE: XLP)

iShares Dow Jones US Telecom (NYSE: IYZ)

Technology Select Sector SPDR (NYSE: XLK)

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