Fourth-quarter earnings reports will soon start rolling in. Assuming that news is good, it could assuage skittish investors. It could also provide some support to an equity market that has scuffled in recent weeks.
S&P 500 member firms may make good on delivering strong Q4 results and unveiling encouraging guidance for the current quarter and beyond. So it’s reasonable to assume the technology and communication services sectors, among others, would be key contributors to that trend. That could augur well for ETFs like the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
While both funds track the Nasdaq 100 Index, not the S&P 500, the ETFs’ overlap by weight with the S&P 500 is nearly 50%. And 84% of the their holdings reside in the benchmark domestic equity gauge. That confirms S&P 500 earnings trends are highly relevant to these Invesco funds.
S&P 500 Earnings Trend Could Lift QQQ
Should current forecasts be met or exceeded, earnings season could potentially support QQQ and QQQM. FactSet’s John Butters recently noted the S&P 500 is expected to post Q4 EPS growth of 11.7%.That would be the best year-over-year increase since the final quarter of 2021.
In what could be good news for growth stocks and ETFs like QQQ and QQQM, Butters pointed out that earnings improvement trends late last year indicate the S&P 500 could actually post YoY EPS growth of 14% for the October through December period. There is some precedent for such a surprise.
“In fact, the actual earnings growth rate has exceeded the estimated earnings growth rate at the end of the quarter in 37 of the past 40 quarters for the S&P 500. The only exceptions were Q1 2020, Q3 2022, and Q4 2022,” he said.
Importantly, there’s also a recent track record of S&P 500 member firms, including those residing in QQQ and QQQM, beating EPS forecasts.
“Over the past four quarters (Q4 2023 through Q3 2024), actual earnings reported by S&P 500 companies have exceeded estimated earnings by 4.9% on average. During these four quarters, 77% of companies in the S&P 500 reported actual EPS above the mean EPS estimate on average,” added Butters.
As earnings plays, QQQ and QQQM matter. That’s because much of the S&P 500’s recent earnings ebullience is attributable to the technology and communication services sectors. Those two sectors combine for two-thirds of the Invesco ETFs’ portfolios.
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