The start of April means the second quarter is officially here. That means first-quarter earnings season is right around the corner. Those reports could influence broader U.S. equity gauges, which notched solid showings in the first three months of the year.
We will see how things play out during the upcoming earnings season. There are encouraging signs, judged by the amount of negative earnings per share (EPS) revisions posted by sell-side analysts in the first quarter. That could be constructive for exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
Both ETFs follow the Nasdaq-100 Index (NDX) – a tech-heavy gauge that’s higher by nearly 8% year-to-date. Data indicate negative EPS revisions in the January through March period were below-average. This could be promising for QQQ and QQQM.
QQQ Sector Composition Matters for Earnings
While S&P 500 earnings are widely observed, experienced investors know that the trends aren’t linear across the 11 sectors represented in the index and it could be sector composition that sets up QQQ and QQQM for earnings season success.
“At the sector level, seven of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2024 from December 31 to March 27, led by the Materials (-13.0%) and Energy (-12.3%) sectors. On the other hand, four sectors recorded an increase in their bottom-up EPS estimate for Q1 2024 during this period, led by the Communication Services (+2.2%) sector,” noted John Butters of FactSet.
Fortunately for QQQ and QQQM investors, the ETFs allocate 15.50% of their rosters to communication services stocks. Conversely, they allocate just 2.12% combined to the materials and energy sectors. There are other encouraging signs regarding EPS trends and the sector weights found in the two Invesco ETFs.
“At the sector level, six sectors witnessed a decrease in their bottom-up EPS estimate for CY 2024 from December 31 to March 27, led by the Energy (-7.8%) and Materials (-5.0%) sectors. On the other hand, five sectors recorded an increase in their bottom-up EPS estimate for CY 2024 during this period, led by the Communication Services (2.2%) and Information Technology (1.8%) sectors,” added Butters.
QQQ and QQQM allocate nearly half their weights to large- and mega-cap technology stocks. Therefore, the funds are credible proxies on EPS trends in that sector.
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