Barring a few hiccups, year 2017 has so far turned out to be a great one for investors. As the earnings season ramps up, the overall picture emerging for this reporting cycle is skewed toward the positive with a projected sequential increase in earnings and revenues. Hence, investors need to replenish their portfolio with stocks that are likely to trump estimates this season.

Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale today.The sector has gained 8.1% so far in the year and has comfortably outperformed the S&P 500 index that advanced 4.5%. We believe that the favorable economic indicators and friendlier fiscal and regulatory policies from the current regime bode well for the sector.

Factors Setting the Tone for the Sector

The recent rebound in oil prices, decelerating unemployment rate (4.5% in March) and a gradual improvement in the housing market signal that the economy is on a recovery mode. Undoubtedly, the retail sector presents itself as a lucrative investment hub amid such a backdrop. These factors are playing a crucial role in raising buyers’ confidence.

U.S. consumer confidence increased in March to touch the highest level since Dec 2000 amid growing labor market optimism. We expect this positive sentiment to translate into higher consumer spending. Definitely, soft retail sales for the second consecutive month in March raise some concern. As per the Commerce Department, U.S. retail and food services sales fell 0.2% in March, following a revised down reading of 0.3% decrease registered in February.

Certainly, the retail landscape has been undergoing a fundamental change. With a digital transformation in shopping and consumers splurging online, store and mall traffic has been hit hard. As a result, most retailers, including big-box, are struggling to compete with e-commerce channels and are being forced to trim their store count to focus more on an online model. Retailers who have responded quickly to it by staying ahead technologically stand in good stead.

The Season So Far

Per the Earnings Outlook report as of Apr 19, out of the 57 S&P 500 companies that have come up with their quarterly numbers, approximately 75.4% have posted positive earnings surprises, while 54.4% beat top-line expectations. According to the report, earnings for S&P 500 companies that have reported are up 18.7% from the same-period last year, while revenues have increased 6.4%.

About 16.7% of the S&P 500 companies in the Retail-Wholesale sector have reported their results and 42.9% beat earnings estimates, while 57.1% surpassed revenue estimates. While earnings rose 1% year over year, revenues climbed 2%. According to the report, the sector is expected to record top-line growth of 3.3% but is likely to witness earnings decline of 5% this season.