ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. What to Expect From Q1 Earnings
News
Share

What to Expect From Q1 Earnings

Justin KuepperApr 13, 2016
2016-04-13

Alcoa Inc. (AA) kicked off earnings season with better-than-expected earnings, but lackluster revenue and a grim outlook sent shares about 5% lower on Tuesday morning. Analysts are expecting similar performance from the rest of the market, which continues to struggle with low oil prices and a strong dollar. According to FactSet, S&P 500 profits are expected to fall 9.1% year over year, despite earlier projections calling for 0.7% growth.

FactSet Graph S&P 500
Figure 1 – S&P 500 P/E Multiple – Source: Multpl

The S&P 500 has been surprisingly resilient despite these grim predictions. After a 10% rally beginning in mid-February, the SPDR S&P 500 ETF (SPY A) continues to trade in the black for the year. The benchmark index’s price-earnings ratio stands at 19x with a forward P/E of about 17x, according to State Street Global Advisors, which places it above the historic mean of about 15.5x and at its highest levels since the 2008 financial crisis (see Figure 1).


Content continues below advertisement

Health Care & Biotech Drive Growth

Investors can expect to see the majority of earnings growth come from health care and biotechnology sectors thanks to new drugs and mergers. After being beaten down since the middle of last year, the sectors posted a strong recovery in recent months. Biotech earnings are expected to grow 12% this quarter, while mergers and acquisitions – particularly by Pfizer Inc. (PFE) – could drive valuations higher in the near term.

Biotech Performance Chart
Figure 2 – Biotech Performance – Source: StockCharts

Of course, the expectations for higher growth may already be priced into equities, which might make them less appealing. The iShares NASDAQ Biotechnology ETF (IBB A-) trades with a P/E ratio of 22.43, which makes it among the most expensive ETFs in the space. Traders will weigh the sector’s earnings with this valuation and technical factors surrounding its recent decline in determining where it’s headed moving forward.

Energy & Financials Weigh on Growth

The energy sector is likely to see the biggest decline in earnings as it may report a small loss for the first time in recent memory. The energy sector also has the highest forward P/E ratio in the market at 62.7x, which suggests that many investors are betting on a turnaround in crude oil prices. These prices are heavily dependent on OPEC’s decision-making at its upcoming meetings and adherence to plans to freeze or cut crude oil production, resolving the global supply glut.

Crude Oil WTI Chart Finviz
Figure 3 – Crude Oil Prices – Source: Finviz

From a valuation standpoint, the financial sector may present the best opportunity for investors in today’s market. The sector has a forward P/E of 12.4x, which is the lowest in the market following a dramatic fall in prices. Expectations for this earnings season are very low after 70 of 90 companies reported downward revisions to their EPS estimates for the first quarter, which could set the stage for earnings surprises. Of course, the future depends on interest rates.

The Bottom Line

Earnings growth isn’t expected to resume until the second half of the year, although a lot of that depends on the price of oil and the dollar’s strength. While analysts are predicting a 2.1% increase in earnings and a 1.6% increase in revenue for the full year, the International Monetary Fund cut its global forecast to 3.2% growth and warned of stagflation risks. As such, the S&P 500’s true performance may depend a lot more on factors that nobody controls.

Investors may want to focus on finding value opportunities in higher growth sectors such as health care and biotech, or seek out potential earnings surprises in underappreciated sectors like financials. But in aggregate terms, this earnings season is likely to be disappointing and could halt the S&P 500’s robust rally.

» Popular Pages

  • Tickers
  • Articles

Feb 03

Main Management Market Note: February 3, 2023

Feb 03

SPYI, a High-Income ETF Within Equities, Up 10%

Feb 03

Navigating Exchange FOMO for Advisors

Feb 03

In 2022, Main Supply of EU Electricity Was Renewable

Feb 03

VettaFi’s ETF Rising Stars: January 2023

Feb 03

Big Tech Is No Longer Certain; Consider Active

Feb 03

Equal-Weight Cloud Computing ETF WCLD Hits Buy Signal

Feb 03

American Century's KORP, VALQ Hit 5-Year Mark

Feb 03

Bitcoin Opens 2023 Strong, Outperforms Bonds

Feb 03

These 2 ETFs Show Growth Is Back in Style

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X