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Dow ETF in Focus Ahead of Q3 Earnings

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The Dow Jones Industrial Average Index has struggled over the past three months, shedding 1.6%. Worries over longer-than-expected higher interest rates and a weakening Chinese economy have weighed on investors’ sentiment. However, SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , which tracks the Dow Jones Industrial Average Index, has managed to stay in the green, rising 0.5%.

The third-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. There has been a notable improvement in the earnings outlook in recent months, with positive revisions for several key sectors since the start of the third quarter helping to offset continued pressure on estimates for others.

Total S&P 500 earnings are expected to be down 2% from the same period last year on 0.6% lower revenues, per the latest Earnings Trends report. This would represent the fourth consecutive quarter of earnings decline and follow declines of 7.1% in the second quarter, 3.4% in the first quarter and 5.4% in the fourth quarter of 2022. Estimates have come down about 0.1% since the start of the period. Six sectors, including the Tech sector, have seen a rise in estimates (read: 5 Favorite Sectors This Earnings Season and Their ETFs).

Of the 16 Zacks sectors, eight are expected to post earnings growth in the third quarter. Aerospace (57.2%) sector earnings are expected to record the strongest gains, followed by Consumer Discretionary (41.1%), Retail (13.1%), Technology (11%) and Utilities (6.3%).

DIA in Focus

SPDR Dow Jones Industrial Average ETF Trust is one of the largest and most popular ETFs in the large-cap space, with an AUM of $27.9 billion and an average daily volume of 3 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components, with a slight tilt towards the top firm. Healthcare (20.8%), financials (19.7%), information technology (18.6%), industrials (14.6%) and consumer discretionary (12.6%) are the top five sectors.

SPDR Dow Jones Industrial Average ETF charges 16 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk.   

Nearly one-fourth of the blue-chip firms are expected to announce results this week and the next. JPMorgan Chase (JPM - Free Report) and UnitedHealth (UNH - Free Report) are expected to report on Oct 13, while Goldman (GS - Free Report) and Johnson & Johnson (JNJ - Free Report) will announce earnings on Oct 17. Dow Inc. (DOW - Free Report) is scheduled to report on Oct 24, while International Business Machines (IBM - Free Report) will report on Oct 25. Intel (INTC - Free Report) is expected to release earnings on Oct 26.

Let’s delve deeper into the probable third-quarter earnings picture that will likely aid the fund in the coming days.

Earnings Whispers

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 chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JPMorgan has an Earnings ESP of +1.18% and a Zacks Rank #2. The stock has seen a positive earnings estimate revision of seven cents over the past 30 days for the to-be-reported quarter. Analysts increasing estimates right before earnings — with the most up-to-date information — is a good indicator for the stock. JPM delivered an earnings surprise 15.3%, on average, in the last four quarters.

UnitedHealth has an Earnings ESP of +0.52% and a Zacks Rank #3. The stock has witnessed negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. It delivered an earnings surprise of 3.39%, on average, over the last four quarters.

Goldman has an Earnings ESP of -3.85% and a Zacks Rank #3. The stock has witnessed negative earnings estimate revision of $1.86 over the past 30 days for the to-be-reported quarter. GS’ earnings surprise track over the preceding four quarters is also not good, with the average negative surprise being 5.89%.

Johnson & Johnson has an Earnings ESP of +0.20% and a Zacks Rank #4 (Sell). The stock saw a negative earnings estimate revision of 14 cents over the past 30 days for the to-be-reported quarter. JNJ’s earnings surprise track over the preceding four quarters is robust, the average being 5.58% (read: 5 Winning ETF Strategies for Q4).

International Business Machines has an Earnings ESP of 0.00% and a Zacks Rank #2. The stock saw no earnings estimate revision in the past 30 days for the to-be-reported quarter. IBM delivered an earnings surprise of 4.38%, on average, in the last four quarters.

Dow has an Earnings ESP of +6.30% and a Zacks Rank #3. The stock has seen a positive earnings estimate revision of 4 cents over the past 30 days for the to-be-reported quarter. DOW came up with a beat in three of the last four quarters, the average being 13.09%.

Intel has an Earnings ESP of +8.98% and a Zacks Rank #3. The stock has witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 130.88%, on average, over the last four quarters.

Bottom Line

With some of the blue-chip companies having reasonable chances of coming up with an earnings surprise, investors should closely monitor the movement of the Dow ETF and grab any opportunity that arises from a surge in any of the 30 stocks.

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