Small-cap stocks have been outperforming their bigger peers since late last year. Russell 2000 ETF IWM has gained 33.6% versus the 11.2% uptick in the S&P 500. Since small-cap stocks are more closely tied to the domestic economy, back-to-back news of coronavirus vaccines from the likes of Pfizer, Moderna and AstraZeneca bode well for the small-cap stocks. Notably, the United States administered its first shots of the COVID-19 vaccine on Dec 14.
Moreover, news of fiscal stimulus under the Biden presidency also aided the small-cap rally. Joe Biden’s “Rescue America” plan favors a COVID-19 relief package worth up to $1.9 trillion (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).
Since the dual tailwinds worked wonders for pint-sized stocks, investors must be interested in knowing how the earnings picture is evolving for the segment. That would give investors a clear idea in assessing the future rally in an otherwise still-undervalued small-cap segment.
Q4 Performance: S&P 600 Versus 500
Fourth-quarter earnings for the S&P 500 are expected to be up 0.4% year over year on 2.0% higher revenues. This increment will follow a 7.0% drop-off in Q3, a 32.2% decline in Q2 and a 12.8% slide in Q1.
Looking at Q4 as a whole for the small-cap index, total earnings are expected to be down 10.9% from the same period last year on 2.4% lower revenues. The decline in earnings will follow a 5.5% drop in Q3, a 62.1% plunge in Q2 and a 68.1% decline in Q1, per the Earnings Trends issued on Feb 3, 2021.
No wonder, the earnings underperformance has been prevalent for small-cap stocks for a long time. Still, the rate of decline appears to better if we look at the beginning of 2020. Against this backdrop, below we highlight a few small-cap sector ETFs that are promising a better earnings and revenue growth rate in the ongoing reporting season.
Construction — Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This sector of the S&P 600 index is likely to record 39.8% earnings growth in Q4 on 12% higher revenues. The fund has advanced 3.6% this year.
Consumer Staples — Invesco S&P SmallCap Consumer Staples ETF (PSCC - Free Report)
The sector is likely to end the fourth quarter with a 25.4% increase in earnings and 5% revenue gains. The fund PSCC is up 11.4% this year.
Basic Materials — Invesco S&P SmallCap Materials ETF (PSCM - Free Report)
The sector is likely to end the fourth quarter with a 58.4% increase in earnings and 5.2% revenue gains. The fund PSCM is up 4.8% this year.
Technology— Invesco S&P SmallCap Information Technology ETF (PSCT)
Earnings are likely to be 20.5% higher while revenues may see a 2.9% uptick. The fund PSCU has gained 9.5% this year.
Utilities — Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU - Free Report)
Earnings are likely to be 29.6% higher while revenues may see 17.6% gains. PSCU has advanced 9.2% this year.
Finance — Invesco S&P SmallCap Financials ETF (PSCF - Free Report)
Earnings are likely to be up 17.8% year over year on 3.4% higher revenues. The fund has tacked on 6.4% gains in the year-to-date frame.
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Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Small-cap stocks have been outperforming their bigger peers since late last year. Russell 2000 ETF IWM has gained 33.6% versus the 11.2% uptick in the S&P 500. Since small-cap stocks are more closely tied to the domestic economy, back-to-back news of coronavirus vaccines from the likes of Pfizer, Moderna and AstraZeneca bode well for the small-cap stocks. Notably, the United States administered its first shots of the COVID-19 vaccine on Dec 14.
Moreover, news of fiscal stimulus under the Biden presidency also aided the small-cap rally. Joe Biden’s “Rescue America” plan favors a COVID-19 relief package worth up to $1.9 trillion (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).
Since the dual tailwinds worked wonders for pint-sized stocks, investors must be interested in knowing how the earnings picture is evolving for the segment. That would give investors a clear idea in assessing the future rally in an otherwise still-undervalued small-cap segment.
Q4 Performance: S&P 600 Versus 500
Fourth-quarter earnings for the S&P 500 are expected to be up 0.4% year over year on 2.0% higher revenues. This increment will follow a 7.0% drop-off in Q3, a 32.2% decline in Q2 and a 12.8% slide in Q1.
Looking at Q4 as a whole for the small-cap index, total earnings are expected to be down 10.9% from the same period last year on 2.4% lower revenues. The decline in earnings will follow a 5.5% drop in Q3, a 62.1% plunge in Q2 and a 68.1% decline in Q1, per the Earnings Trends issued on Feb 3, 2021.
No wonder, the earnings underperformance has been prevalent for small-cap stocks for a long time. Still, the rate of decline appears to better if we look at the beginning of 2020. Against this backdrop, below we highlight a few small-cap sector ETFs that are promising a better earnings and revenue growth rate in the ongoing reporting season.
Construction — Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This sector of the S&P 600 index is likely to record 39.8% earnings growth in Q4 on 12% higher revenues. The fund has advanced 3.6% this year.
Consumer Staples — Invesco S&P SmallCap Consumer Staples ETF (PSCC - Free Report)
The sector is likely to end the fourth quarter with a 25.4% increase in earnings and 5% revenue gains. The fund PSCC is up 11.4% this year.
Basic Materials — Invesco S&P SmallCap Materials ETF (PSCM - Free Report)
The sector is likely to end the fourth quarter with a 58.4% increase in earnings and 5.2% revenue gains. The fund PSCM is up 4.8% this year.
Technology— Invesco S&P SmallCap Information Technology ETF (PSCT)
Earnings are likely to be 20.5% higher while revenues may see a 2.9% uptick. The fund PSCU has gained 9.5% this year.
Utilities — Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU - Free Report)
Earnings are likely to be 29.6% higher while revenues may see 17.6% gains. PSCU has advanced 9.2% this year.
Finance — Invesco S&P SmallCap Financials ETF (PSCF - Free Report)
Earnings are likely to be up 17.8% year over year on 3.4% higher revenues. The fund has tacked on 6.4% gains in the year-to-date frame.
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 >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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