There’s no shortage of political drama this week, as the Democratic National Convention gathers in Chicago to nominate Vice President Kamala Harris as the party’s nominee. Throughout it all, GOP nominee Donald Trump is ramping up his personal attacks on Harris.

As an investor, I consider these proceedings to constitute…entertainment.

The real substance this political season is occurring during earnings season. On that score, the news is greatly encouraging.

With 93% of companies in the S&P 500 having reported second quarter 2024 operating results, performance has been powerful. Among the companies that have reported, 78% have beaten analyst estimates, with an average upside surprise of 3.5%.

Year-over-year earnings growth for Q2 is 10.9%, which is the highest rate since the fourth quarter of 2021.

Sector performance is broad, with nine of the 11 sectors reporting year-over-year earnings growth. Five of these nine sectors are reporting or have reported double-digit growth: utilities, information technology, financials, health care, and consumer discretionary.

On the other hand, two sectors are reporting or have reported a year-over-year decline in earnings, led by the materials sector.

I’m particularly keen on the utilities sector right now, with good reason. The utilities sector reported the highest year-over-year earnings growth rate of all 11 sectors for Q2 at 20.0%.

At the industry level, four of five industries in the utilities sector reported year-over-year earnings growth: electric utilities (26%), independent power and renewable electricity producers (25%), gas utilities (23%), and multi-utilities (5%). Water utilities (-1%) is the only industry that reported a year-over-year decline in earnings.

It’s interesting to note that the electric utilities industry was the largest contributor to year-over-year earnings growth for the sector. If this industry were excluded, the blended earnings growth rate for the utilities sector would decline to 8.4% from 20.4%. (“Blended” combines actual earnings results with projections.) As economic growth remains resilient, demand for electricity has been strong.

The utilities sector was a laggard in 2023, but it has come roaring back this year, as the Federal Reserve hints at an interest rate cut in September. Falling rates are manna from heaven for utilities companies; the same is true of economic expansion.

I remain confident that the continued broadening of earnings growth should allow erstwhile laggards such as utilities to catch-up to technology and communications services stocks, which have occupied market leadership. We continue to witness sector rotation; calibrate your portfolio accordingly.

Robust Market Breadth

Market breadth is healthy, as reflected by the rising New York Stock Exchange Advance/Decline line (NYAD):

The NYAD is a breadth indicator that measures the difference between the number of advancing and declining stocks on the NYSE. It’s a cumulative line that adds the net advances (advancing stocks minus declining stocks) to the previous day’s total. A rising NYAD indicates that more stocks are advancing than declining over time, which is considered bullish.

When the NYAD is rising in tandem with major indices such as the S&P 500, Dow Jones Industrial Average, and NASDAQ, it confirms that the uptrend is strong and not just driven by a few large-cap stocks. This alignment between market breadth and price action is a positive signal.

On Tuesday, the main U.S. stock market indices took a breather from the rebound rally to close lower as follows:

• DJIA: -0.15%
• S&P 500: -0.20%
• NASDAQ: -0.33%
• Russell 2000: -1.17%

In a sign of growing optimism over monetary policy, the benchmark 30-year U.S. Treasury yield fell 1.09% to close at 4.07%.

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John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.