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After logging the biggest annual losses since 2008, the Dow Jones made a comeback at the start of 2019. The blue-chip index gained 3% in the first two weeks of this year on the back of robust December job data and Powell’s comment that the Fed is not in a hurry to raise rates this year. Signs of progress in U.S.-China trade talks also boosted demand for riskier assets. Additionally, Fed minutes, which indicated caution on future interest rate hikes, helped to boost sentiment.
This is one of the largest and most-popular ETFs in the large-cap space with AUM of more than $20.5 billion and average daily volume of 4.9 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 10% share. Industrials (22.3%), information technology (17.2%), financials (14%), healthcare (13.9%) and consumer discretionary (12.3%) are the top five sectors. DIA charges 17 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Let’s delve into the Q4 earnings picture that will likely set up the movement of the fund in the coming days.
Q4 Earnings Trends
Earnings for the S&P 500 Index are expected to grow 10.5% year over year on 5.3% higher revenues. This represents a notable deceleration from 25% earnings growth in the first three quarters of 2018 (read: 4 Sector ETF & Stock Picks to Bet on Ahead of Q4 Earnings).
In fact, the magnitude of earnings revision has moved down from 15.9% at the start of the quarter, representing higher estimate cuts than the preceding four quarters. The downtrend can be due to uncertain global economic backdrop that compounded the market’s pre-existing worries about Fed policy and global trade.
Nearly one-fourth of the blue chip firms are expected to announce their results this week and in the next. JPMorgan Chase (JPM - Free Report) is expected to release its results on Jul 15.
UnitedHealth Group (UNH - Free Report) and Goldman (GS - Free Report) are scheduled to report on Jan 15 and Jan 16, respectively, while International Business Machines (IBM - Free Report) and American Express (AXP - Free Report) will report on Jan 17. Johnson & Johnson (JNJ - Free Report) is expected to release its quarterly results on Jan 22. Procter & Gamble Company (PG - Free Report) will come up its reports on Jan 23, while General Electric (GE - Free Report) has its earnings release slated for Jan 31.
Earnings Whisper
According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while Zacks Rank #4 or 5 (Sell rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
JPMorgan has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company delivered average positive earnings surprise of 3.93% in the last four quarters. It has seen negative earnings estimate revisions of 4 cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Score of F.
UnitedHealth has a Zacks Rank #2 and an Earnings ESP of 0.00%. The stock has witnessed negative earnings estimate revision of a penny for the yet-to-be-reported quarter over the past 90 days. It delivered average positive earnings surprise of 3.67% in the last four quarters. The stock has a top VGM Score of A.
Goldman has a Zacks Rank #4 and an Earnings ESP of -7.36%, indicating less chances of beating estimates this quarter. The earnings surprise track over the past four quarters is robust with the average positive surprise being 20.60%. The company has witnessed negative earnings estimate revision of 76 cents over the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of F (read: Stocks & ETFs to Pick From Goldman Sachs' Favored List in 2019).
International Business Machines has a Zacks Rank #3 and an Earnings ESP of -1.27%. The stock delivered average four-quarter positive earnings surprise of 1.13%. Estimates for the to-be-reported quarter have been revised lower by 4 cents in the past 90 days. The stock has a VGM Score of B.
American Express has a Zacks Rank #3 and an Earnings ESP of +0.78%. The company delivered positive earnings surprise in the last four quarters, with the average beat being 4.39%. It has seen negative earnings estimate revision of a couple of cents over the past three months for the to-be-reported quarter. The stock has a VGM Score of B.
Johnson & Johnson has a Zacks Rank #3 and Earnings ESP of 0.00%. It has witnessed positive earnings estimate revisions of a penny in the past three months for the to-be-reported quarter. It delivered a positive earnings surprise of 1.65% in the last four quarters. The stock has a VGM Score of C.
Procter & Gamble Company has a Zacks Rank #2 and an Earnings ESP of 0.00%. Though its earnings surprise track record over the last four quarters is good with the average beat being 3.18%, the stock has not seen earnings estimate revisions in the past 90 days for the to-be-reported quarter. It has a VGM Score of D.
General Electric has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company delivered average positive earnings surprise of 3.53% in the last four quarters but has witnessed negative earnings estimate revision of 16 cents in the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of D (read: A Pack of ETFs to Buy for 2019).
Bottom Line
With earnings of most blue-chip companies scheduled over the coming weeks and renewed strength in the stock market, investors should closely monitor the movement of the Dow ETF and grab any opportunity from a surge in any of the 30 stocks.
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A Look at Dow ETF Ahead of Q4 Earnings
After logging the biggest annual losses since 2008, the Dow Jones made a comeback at the start of 2019. The blue-chip index gained 3% in the first two weeks of this year on the back of robust December job data and Powell’s comment that the Fed is not in a hurry to raise rates this year. Signs of progress in U.S.-China trade talks also boosted demand for riskier assets. Additionally, Fed minutes, which indicated caution on future interest rate hikes, helped to boost sentiment.
As such, its proxy version, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , is in the spotlight heading into the earnings season (read: Dovish Fed Minutes Should Boost These ETFs).
DIA in Focus
This is one of the largest and most-popular ETFs in the large-cap space with AUM of more than $20.5 billion and average daily volume of 4.9 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 10% share. Industrials (22.3%), information technology (17.2%), financials (14%), healthcare (13.9%) and consumer discretionary (12.3%) are the top five sectors. DIA charges 17 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Let’s delve into the Q4 earnings picture that will likely set up the movement of the fund in the coming days.
Q4 Earnings Trends
Earnings for the S&P 500 Index are expected to grow 10.5% year over year on 5.3% higher revenues. This represents a notable deceleration from 25% earnings growth in the first three quarters of 2018 (read: 4 Sector ETF & Stock Picks to Bet on Ahead of Q4 Earnings).
In fact, the magnitude of earnings revision has moved down from 15.9% at the start of the quarter, representing higher estimate cuts than the preceding four quarters. The downtrend can be due to uncertain global economic backdrop that compounded the market’s pre-existing worries about Fed policy and global trade.
Nearly one-fourth of the blue chip firms are expected to announce their results this week and in the next. JPMorgan Chase (JPM - Free Report) is expected to release its results on Jul 15.
UnitedHealth Group (UNH - Free Report) and Goldman (GS - Free Report) are scheduled to report on Jan 15 and Jan 16, respectively, while International Business Machines (IBM - Free Report) and American Express (AXP - Free Report) will report on Jan 17. Johnson & Johnson (JNJ - Free Report) is expected to release its quarterly results on Jan 22. Procter & Gamble Company (PG - Free Report) will come up its reports on Jan 23, while General Electric (GE - Free Report) has its earnings release slated for Jan 31.
Earnings Whisper
According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while Zacks Rank #4 or 5 (Sell rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
JPMorgan has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company delivered average positive earnings surprise of 3.93% in the last four quarters. It has seen negative earnings estimate revisions of 4 cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Score of F.
UnitedHealth has a Zacks Rank #2 and an Earnings ESP of 0.00%. The stock has witnessed negative earnings estimate revision of a penny for the yet-to-be-reported quarter over the past 90 days. It delivered average positive earnings surprise of 3.67% in the last four quarters. The stock has a top VGM Score of A.
Goldman has a Zacks Rank #4 and an Earnings ESP of -7.36%, indicating less chances of beating estimates this quarter. The earnings surprise track over the past four quarters is robust with the average positive surprise being 20.60%. The company has witnessed negative earnings estimate revision of 76 cents over the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of F (read: Stocks & ETFs to Pick From Goldman Sachs' Favored List in 2019).
International Business Machines has a Zacks Rank #3 and an Earnings ESP of -1.27%. The stock delivered average four-quarter positive earnings surprise of 1.13%. Estimates for the to-be-reported quarter have been revised lower by 4 cents in the past 90 days. The stock has a VGM Score of B.
American Express has a Zacks Rank #3 and an Earnings ESP of +0.78%. The company delivered positive earnings surprise in the last four quarters, with the average beat being 4.39%. It has seen negative earnings estimate revision of a couple of cents over the past three months for the to-be-reported quarter. The stock has a VGM Score of B.
Johnson & Johnson has a Zacks Rank #3 and Earnings ESP of 0.00%. It has witnessed positive earnings estimate revisions of a penny in the past three months for the to-be-reported quarter. It delivered a positive earnings surprise of 1.65% in the last four quarters. The stock has a VGM Score of C.
Procter & Gamble Company has a Zacks Rank #2 and an Earnings ESP of 0.00%. Though its earnings surprise track record over the last four quarters is good with the average beat being 3.18%, the stock has not seen earnings estimate revisions in the past 90 days for the to-be-reported quarter. It has a VGM Score of D.
General Electric has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company delivered average positive earnings surprise of 3.53% in the last four quarters but has witnessed negative earnings estimate revision of 16 cents in the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of D (read: A Pack of ETFs to Buy for 2019).
Bottom Line
With earnings of most blue-chip companies scheduled over the coming weeks and renewed strength in the stock market, investors should closely monitor the movement of the Dow ETF and grab any opportunity from a surge in any of the 30 stocks.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>