Sector earnings for the S&P 500

(Data courtesy of Standard & Poor's)

Generally speaking, stocks follow earnings. For the financials, earnings have been recovering and, not surprisingly, the sector has staged a strong recovery since the mass hysteria of 2008/2009. (Of course, this was after quite a few of them crumpled and the rest were just one Bernanke put expiration date away from purgatory.)

Volatile earnings trends are more suited to traders than investors. Traders yearn for the volatility of prices. Investors should want a slow and steady rise up and to the right. They should not want to buy and sell. For this to work, they need sectors that do not go through stomach-churning drops every now and then.

Trends such as these are evident in graphs of sector earnings. (Even better are long-term graphs of sector earnings.) Consumer staples, for instance, is one such sector for long-term investors. Others are health care (though this one has too much government meddling) and possibly industrials. Earnings don't yo-yo around. Earnings trend slowly and up and to the right.

Still, a lack of volatility is not the only requirement for long-term investors. They also need growth. Thus, the utility sector is generally not a good choice. And valuations, as always, do matter. Finally, as has been proven time and time again, most analyst estimates are biased toward the optimistic end. Many analysts also miss the macroeconomic picture.