Strong Start to Q2 Earnings Season: 4 Sector ETFs to Play
Among the 198 S&P 500 companies that have reported their Q2 results so far, total earnings are up 7.0% compared to the same quarter last year, driven by a 5.5% increase in revenues. Additionally, 82.8% of these companies have exceeded EPS estimates, while 79.8% have surpassed revenue forecasts.
The percentage of these 198 S&P 500 companies surpassing both EPS and revenue estimates is notably higher than the historical norm. Specifically, the Q2 EPS beat rate of 82.8% exceeds the 20-quarter average of 80.1%, while the revenue beat rate of 79.8% is well above the historical average of 69.0% for this group.
Sector ETFs in Focus
Against this backdrop, below we highlight a few sector-based exchange-traded funds (ETFs) that should enjoy the tailwind of rising Q3 estimates and strong year-over-year growth.
Finance – Vanguard Financials ETF VFH – Zacks Rank #2 (Buy)
In the Financial sector, Q2 earnings have been reported by companies accounting for 64.5% of the sector's market capitalization in the S&P 500. These firms have posted a 17.6% year-over-year increase in earnings, alongside a 5.8% rise in revenues. So far, 90.0% have beaten EPS estimates, while 76.0% have exceeded revenue forecasts.
This is a remarkably better performance from the Finance sector relative to other recent periods, with Q2 earnings growth and the percentage of revenue beats grabbing attention in particular.
Tech – Technology Select Sector SPDR ETF XLK – Zacks Rank #1 (Strong Buy)
In the Technology sector, Q2 results are in for companies representing 22.4% of the sector's market capitalization within the S&P 500. These companies have reported a 15.2% increase in earnings and a 10.6% rise in revenues compared to the same quarter last year. Note that, 90.9% have exceeded EPS estimates, and 100% have topped revenue expectations.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF XLY – Zacks Rank #3 (Hold)
For the Consumer Discretionary sector, Q2 earnings are expected to be 109.7% in Q2 on 2.5% higher revenues. Q3 earnings are expected to be up 1.1% from the same period last year on 2.1% higher revenues.
Aerospace – iShares U.S. Aerospace & Defense ETF ITA – Zacks Rank #2
For the Aerospace sector, Q2 earnings are expected to be 24.8% in Q2 on 11.5% higher revenues. The Q3 earnings are expected to surge 250.9% year over year on 9.9% higher revenues.
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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
Vanguard Financials ETF (VFH): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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