Second-quarter earnings updates from a small number of S&P 500 member firms trickled in last week, and while the meat of earnings season is still a week or so away, investors can derive some clues from the reports that have already been delivered.
At least for now, those clues are positive. That could bode well for potential earnings-related upside for exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). QQQ and QQQM both follow the Nasdaq-100 Index (NDX). As it pertains to earnings season, that’s important. Some of the sectors looking good today on the earnings front are marquee fixtures in the two Invesco ETFs.
“Seven of the eleven sectors are reporting (or are expected to report) year-over-year earnings growth, led by the Consumer Discretionary and Communication Services sectors. On the other hand, four sectors are reporting (or are expected to report) a year-over-year decline in earnings, led by the Energy and Materials sectors,” noted FactSet’s John Butters.
Technology, communication services, and consumer discretionary are the second- and third-largest sector exposures in QQQ and QQQM. They combine for over 32% of the funds’ weights. Conversely, the ETFs allocate just 0.91% of their rosters to materials and energy stocks.
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If last week is any indication, the sector exposures of QQQ and QQQM could prove useful revenue-wise this earnings season. To date, all of the technology and healthcare companies from the S&P 500 that have reported earnings beat revenue estimates. Meanwhile, two-thirds of consumer cyclical firms did so. Those three sectors combine for about 71% of QQQ and QQQM.
It remains to be seen if that momentum carries into this week and beyond. Investors bullish on QQQ and QQQM are hoping it does because earnings tests are imminent for these ETFs.
“During the upcoming week, 60 S&P 500 companies (including five Dow 30 components) are scheduled to report results for the second quarter,” added Butters.
Overall, S&P 500 earnings growth is estimated to be decent this year. However, investors may want to consider the prospects for the back half of 2023, as they pertain to QQQ and QQQM member firms. They may want to particularly consider the fourth quarter. Fortunately, that outlook is bright.
“Looking ahead, analysts still expect earnings growth for the second half of 2023. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 0.1% and 7.6%, respectively,” concluded Butters.
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