U.S. markets were slightly higher Monday, with value exchange traded funds having a leg up over their growth counterpart, as investors wait on a busy week filled with earnings results from prominent technology companies.
To kick off the tech earnings week, Tesla will report earnings after the market closes on Monday. Additionally, investors will be watching for Alphabet Inc, Apple Inc, Amazon.com, Facebook, and Microsoft Corp to report earnings throughout the week.
“This week is really where we enter crunch time for earnings,” Hugh Gimber, a strategist at J.P. Morgan Asset Management, told the Wall Street Journal. “With tech names reporting, the bar is high.”
About 124 S&P 500 companies have reported second-quarter earnings so far, and 88.7% of those that have reported beat estimates, according to Refinitiv data.
“Everybody is expecting earnings to be robust mainly due to easy comparables from last year, and if that trend were to change, it would definitely be a negative for markets,” Sean O’Hara, president at Pacer ETFs, told Reuters.
A Roll Back Concern
Investors will also be waiting on results from the Federal Reserve’s two-day policy meeting beginning on Tuesday. Many are concerned that the Fed could initiate earlier-than-expected interest rate tightening or roll back its accommodative bond purchasing measures in light of rising inflation cues.
“The Fed is not going to be explicit in its language, and the market is going to pay more keen attention to the more local voices from the Fed to get a better idea on the interest rate cycle,” O’Hara added. “If we start seeing any signs of a less supportive Fed, it’ll be a cause for concern.”
ETF investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.
The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small cap companies and is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
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