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Time for 5 Small-Cap Sector ETFs on Earnings Strength?

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Small-cap stocks have underperformed their bigger peers like the S&P 500 stocks this year. Russell 2000 ETF (IWM - Free Report)  has gained 11% versus the 17.7% uptick in the S&P 500. Since small-cap stocks are more closely tied to the domestic economy, recent surge in the delta variant of coronavirus has hurt the small-cap stocks. In the past three months, IWM is off 4.7% versus 5.6% gains in the S&P 500.

Still, it’s earnings time. 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 performance of an otherwise still-undervalued small-cap segment. This is especially true given some small-cap sectors are likely to log triple-digit earnings growth.  

Q2 Performance: S&P 600 Versus 500

Second-quarter earnings for the S&P 500 are expected to be up 71.3% year over year on 19.4% higher revenues. This increment will follow a 22.8% increase in Q3, a 18.3% expansion in Q4 and a 3% uptick in Q1.

Looking at Q2 as a whole for the small-cap index, total earnings are expected to be up 193.4% from the same period last year on 22.8% lower revenues. The growth in earnings will follow a 34.1% expansion in Q3, a 22.5% gain in Q4 and a 13.6% uptick in Q1, per the Earnings Trends issued on Jul 21, 2021.

No wonder, the earnings underperformance has been prevalent for small-cap stocks for a long time. Still, the trend appears to get better if we look from the beginning of 2021. 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.

Industrial Products — Invesco S&P SmallCap Industrials ETF (PSCI - Free Report)

This sector of the S&P 600 index is likely to record 166.8% earnings growth in Q2 on 25.6% higher revenues. The fund has lost 6.6% this year.

Consumer Discretionary — Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report)

The sector is likely to end the fourth quarter with a 118.2% increase in earnings and 40.9% revenue gains. The fund PSCC is down 3.7% in the past three months.

Basic Materials — Invesco S&P SmallCap Materials ETF (PSCM - Free Report)

The sector is likely to end the fourth quarter with a 250.6% increase in earnings and 15% revenue gains. The fund PSCM is down 3.9% in the past three months.

Finance — Invesco S&P SmallCap Financials ETF (PSCF - Free Report)

Earnings are likely to be up 11.3.4% year over year on 7.9% higher revenues. The fund has lost 4.4% in the past three months.

Transportation — SPDR S&P Transportation ETF(XTN - Free Report)

Earnings are likely to be 451.7% higher while revenues may see a 34.3% uptick. The fund XTN has lost 7.4% in the past three months. Though not fully exposed to the small-cap stocks, the underlying S&P Transportation Select Industry Index of the fund XTN represents the transportation segment of the S&P Total Market Index.