Back to top

Image: Bigstock

Dow ETF at All-Time Highs as Q1 Earnings Kick Off

Read MoreHide Full Article

The Dow Jones has been hitting a series of record highs lately on expectations of a strong rebound for corporate America amid swift COVID-19 vaccinations. As the Q1 earnings season kicked off, Goldman (GS - Free Report) and JPMorgan Chase (JPM - Free Report) reported better-than-expected quarterly results, further propelling the blue-chip index.

Goldman reported a massive jump in first-quarter profit, capitalizing on the highest revenues from global trading in more than a decade. Earnings jumped more than four times the earnings in the year-ago period, while revenues more than doubled — both setting quarterly records. Meanwhile, JP Morgan earnings jumped almost 400% in the first quarter driven by strength in stock-trading and investment-banking division.

The largest U.S. health insurer UnitedHealth Group (UNH - Free Report) also came up with stronger-than-expected earnings with upbeat outlook.

The solid run in the blue-chip index is likely to continue given the improvement in the overall earnings expectations. Total S&P 500 earnings are expected to be up 20.6% from the same period last year on 5.6% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors (read: Favorite Sectors of Q1 Earnings & Their Best ETFs, Stocks).

The earnings projection reflects an improvement from the 12.6% growth expected at the start of Q1 and follows the 3.1% earnings growth in Q4. The positive revisions trend is broad-based, with 10 of the 16 Zacks sectors experiencing positive earnings estimate revision over the last three months. While the energy and auto sectors’ increases have been the biggest in proportional terms, the magnitude of estimate increases are the highest for the technology and finance sectors.

Given this upside in the earnings trend, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , which tracks the Dow Jones Industrial Average Index, is in the spotlight.

DIA in Focus

This is one of the largest and the most-popular ETFs in the large-cap space with AUM of $29 billion and an average daily volume of 4.2 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 7.5% share. Information technology (21.4%), industrials (17.7%), healthcare (16.8%), financials (15.2%) and consumer discretionary (13.4%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk (read: 4 Sector ETFs at All-Time Highs).   

Nearly two-tenth of the blue chip firms are expected to announce results this week and in the next. International Business Machines (IBM - Free Report) and CocaCola Company (KO - Free Report) are scheduled to report on Apr 19 while Johnson & Johnson (JNJ - Free Report) is expected to release earnings on Apr 20. Intel (INTC - Free Report) and Dow Inc. (DOW - Free Report) will release earnings on Apr 22.

Let’s delve deeper into the first-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 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.

International Business Machines has a Zacks Rank #3 and an Earnings ESP of -12.49%. It saw positive earnings estimate revision of a penny in the past 30 days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The company came up with a beat in each of the last four quarters, the average being 5.68%. It has a VGM Score of B.

The Coca-Cola Company has a Zacks Rank #3 and Earnings ESP of 0.00%. The company saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. It delivered an average earnings surprise of 14.44% in the last four quarters. The stock has an unimpressive VGM Score of C.

Johnson & Johnson has a Zacks Rank #3 and an Earnings ESP of +3.03%. The company witnessed positive earnings estimate revision of a penny over the past 30 days for the yet-to-be-reported quarter. Goldman’s earnings surprise track over the preceding four quarters has also been robust, with the average beat being 9.49%. The stock has a VGM Score of B (read: JNJ Vaccine Pause Gives Stay-at-Home ETFs a Shot in the Arm).

Intel has a Zacks Rank #4 and an Earnings ESP of +0.22%. The stock witnessed positive earnings estimate revision of 4 cents over the past 30 days for the soon-to-be-reported quarter and delivered an earnings surprise of 15.80%, on average, over the last four quarters. It has a VGM Score of A.

Dow has a Zacks Rank #1 and an Earnings ESP of +2.55%. It saw positive earnings estimate revision of a penny in the past 30 days for the to-be-reported quarter. The company came up with a beat in each of the last four quarters, the average being 20.99%. It has a VGM Score of B.

Bottom Line

With some blue-chip companies’ earnings scheduled for the coming days, investors should closely monitor the movement of the Dow ETF and grab an opportunity that arises 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 >>