Third-quarter earnings season is in its early innings and thus far, results from the financial services sector have been solid. Soon, technology, the largest sector weight in the S&P 500, will deliver widely awaited results for the September quarter to investors.
Those earnings reports could be the next catalysts for the already high-flying sector and could spark further upside for exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ), both of which allocate about half their rosters to tech stocks.
Obviously, earnings are a “show me” concept, meaning positive speculation isn’t enough to satisfy investors. They want to see results. When it comes to the technology sector, it appears as though the third-quarter results are on pace to be encouraging.
QQQ Could Garner Earnings Perks
As of Oct. 14, 110 S&P 500 companies issued third-quarter earnings guidance, with 60 of those updates being negative and 50 being positive. While that breakdown doesn’t sound appealing, some good news, particularly for QQQ and QQQM: Tech accounts for the bulk of the positive updates.
“What is driving the higher number of S&P 500 companies issuing positive EPS guidance? At the sector level, the Information Technology sector has the highest number of companies issuing positive EPS guidance of all 11 sectors at 25,” noted FactSet’s John Butters. “This number is above the 5-year average of 19.9 and above the 10-year average of 16.5 for the sector. In fact, this is the highest number of companies in the Information Technology sector issuing positive EPS guidance for a quarter since Q3 2021 (27).”
Butters added that tech is the only sector to notch an increase in its bottom-up earnings per share (EPS) guidance during the third quarter. That could be indicative of good news to come for QQQ and QQQM as this earnings season unfolds.
In fact, the number of S&P 500 tech companies issuing positive guidance for the just-completed quarter is at its highest level in three years. It is well ahead of the sector’s five-year average for bullish earnings revisions. Another potential assist for QQQ and QQQM could come in the form of tech earnings depth, meaning multiple industries are seen contributing to the sector’s third-quarter EPS growth.
“At the industry level, the Software (8) and Semiconductors & Semiconductor Equipment (7) industries have the highest number of companies issuing positive EPS guidance within the Information Technology sector,” added Butters.
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