ETFs
Will Q2 Earnings Boost Dow ETFs?
Amid the rally fueled by enthusiasm around AI and bets on a Fed rate cut, the Dow Jones Industrial Average is underperforming other large-cap indices, such as the S&P 500 and the Nasdaq Composite Index. SPDR Dow Jones Industrial Average Exchange Traded Fund DIA, which tracks the Dow Jones Industrial Average, has gained 5.3% since the start of the year.
The Q2 2024 earnings season kicks off this week, with the banking sector releasing figures. The overall picture for this reporting cycle is one of continued resilience and a steady improvement in outlook, with a favorable revision trend.
According to the latest earnings trends, total S&P 500 earnings are expected to rise 8.6% from the same period last year, driven by a 4.7% increase in revenue. This will be the highest rate of earnings growth since the 9.9% growth rate in the first quarter of 2022. While estimates have been steadily declining since the start of the quarter, the magnitude of the declines is much smaller than comparable periods in other recent quarters.
Nine of the 16 Zacks sectors are expected to post earnings growth in the second quarter, with the Technology sector (15.8%) posting the largest gains. The Health Care (19.0%), Energy (10.9%), Consumer Discretionary (12.5%) and Financials (9.0%) sectors are next. Notably, the Magnificent 7 companies are expected to see second-quarter earnings growth of 25.5% compared to the same period last year, with revenue up 13.2% (Read: 5 Favorite Sectors for This Earnings Season and Their ETFs).
Energy sector earnings growth is on track to turn positive in the second quarter after remaining in negative territory for the previous four quarters.
Focus on the DIA
SPDR Dow Jones Industrial Average ETF Trust is one of the largest and most popular ETFs in the large-cap sector, with $32.7 billion in assets under management and an average daily volume of 3 million shares. Holding 30 blue-chip stocks, the fund is broadly distributed across its constituents, with a slight bias toward larger companies. The top five sectors are Financials (23%), Information Technology (20.2%), Health Care (17.9%), Consumer Discretionary (14.4%), and Industrials (13.8%).
The SPDR Dow Jones Industrial Average ETF charges 16 bps in annual fees and is rated Zacks ETF Rank #1 (Strong Buy) with medium risk.
Nearly a quarter of blue-chip companies are set to report earnings this week and next week. JPMorgan Chase JPM and Goldman GS are set to report earnings on July 12 and 15, respectively. UnitedHealth UNH and Johnson & Johnson JNJ will report earnings on July 16 and 17, respectively, while International Business Machines IBM will report earnings on July 24. Dow Inc. DOW and Intel INTC are set to report earnings on July 25 (read: 5 Must-Know ETFs for the Second Half).
Let’s take a closer look at the likely second quarter results that will likely help the fund in the days ahead.
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Whispers about profits
According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can discover the best stocks to buy or sell before they are released with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.
JPMorgan has an Earnings ESP of +0.57% and a Zacks Rank #3. The stock has seen a positive revision to its earnings estimates of a few cents over the past seven days for the upcoming quarter. The fact that analysts are increasing their estimates right before earnings – with the most recent information – is a good indicator for the stock. JPM has delivered an earnings surprise of 12.31%, on average, over the past four quarters.
Goldman has an Earnings ESP of -1.35% and a Zacks Rank #3. The stock has seen a positive earnings estimate revision of a few cents over the past seven days for the coming quarter. GS’s earnings surprise trajectory over the past four quarters is good, with the average surprise being 22.78%.
UnitedHealth has an Earnings ESP of +1.06% and a Zacks Rank #3. The stock has seen a negative earnings estimate revision of a few cents over the past 30 days for the coming quarter. It has delivered an earnings surprise of 3.65%, on average, over the past four quarters.
Johnson & Johnson has an Earnings Esp of 0.00% and a Zacks Rank #3. The stock has seen a negative earnings estimate revision of one penny over the past 30 days for the coming quarter. JNJ’s track record of earnings surprises over the trailing four quarters is solid, averaging 4.09%.
International Business Machines has a 0.00% Earnings ESP and a Zacks Rank #4. The stock has not seen any earnings estimate revisions in the last 30 days for the coming quarter. IBM has delivered an earnings surprise of 5.20%, on average, over the last four quarters (read: Top-Ranked ETFs That Outperformed the Market in the First Half of the Year).
Dow has an earnings per share ESP of -1.20% and a Zacks Rank #3. The stock has seen a negative earnings estimate revision of 9 cents over the past 30 days for the coming quarter. DOW has outperformed in each of the last four quarters, with the average being 11.36%.
Intel has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). The stock has not seen any earnings estimate revisions in the last 30 days for the coming quarter and has generated an earnings surprise of 145.36%, on average, over the past four quarters.
Conclusion
With some of the blue-chip companies likely to surprise on earnings, investors should keep a close eye on the Dow ETF and take advantage of any opportunities that arise from a rise in any of the 30 stocks.
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Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
International Business Machines Corporation (IBM): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
Dow Inc. (DOW): Free Stock Analysis Report
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports