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Estimates for Q4 Dropping: 4 Sector ETFs See Positive Revisions

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Investors should note that there has been a notablenegative shift in earnings estimate revisions. This was a common theme in the Q3 earnings season and will most likely remain so in the upcoming Q4 reporting cycle.  The reason for such moves is margin pressure due to rising costs and supply-chain disruptions. Factors like labor cost inflation and supply chain did not spare any behemoth, be it Amazon (AMZN) or Apple (AAPL).

Per the Zacks Earnings Trends report issued on Dec 8, 2021, total S&P 500 earnings are currently expected to rise 19.0% on 11.3% higher revenues for the fourth quarter of 2021. This would follow the 40.5% rise in earnings on 16.9% higher revenues in third-quarter 2021. Estimates for Q4 have been slipping since the start of the quarter, with the current aggregate total down 1.2% since the mid-October high.

Still, some sectors are enjoying positive estimate revisions. These include Energy, Finance, Autos and Basic Materials, per Zacks Earnings Trends. Below we highlight a few of them.

Sector ETFs in Focus

Energy

The Q4 estimates for the Energy sector have moved up by 27.2% in the aggregate since mid-October. The sector has been in a sweet spot this year. The pent-up demand, widespread vaccination and suppressed supplies from the OPEC+ led to the energy rally. Oil even reacheda three-year high of above $86 in October.

While the Omicron fear had dented the rally on demand worries a few weeks back, bets that the new COVID-19 variant Omicron may cause milder illness than previously feared reignited the oil rebound all over again. SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) can thus be tracked for gains.

Finance

For the Finance sector, Q4 earnings are expected to rise 3.4% from the same period last year on 3% higher revenues. This would follow the 37.6% earnings growth on 11.3% higher revenues in third-quarter 2021. The sector (comprising about 902 stocks) has seen positive revisions for 576 stocks compared with 153 negative revisions. Financial Select Sector SPDR Fund (XLF - Free Report) is thus a great bet here.

Autos

Though supply-chain disruptions and semiconductor shortages have been headwinds to the auto sector, consumer demand has been strong. Be it new vehicles or used, price inflation of cars was noticed in November. Vehicle indexes also continued to rise in November. The index for used cars and trucks gained 2.5% sequentially, the same increase as in October. The index for new vehicles rose 1.1% in November after a 1.4% increase in October. First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) can thus be played on the uptick in car price inflation.

Earnings from the sector in Q4 are expected to decline 8.1% versus 12.3% drop reported in Q3. Revenues from the sector are expected to fall 0.5% in Q4 versus a 2.6% drop recorded in Q3.  While rate of growth is negative, the trend shows a sequential improvement.

Basic Materials

Earnings from the sector in Q4 are expected to be 77.1% versus 136.1% in Q3. Revenues from the sector are expected to be 27.8% in Q4 versus 38.7% in Q3.  Earnings growth projection is the highest among the 16 S&P 500 sectors covered by Zacks, while the revenue growth projection is the third highest. Materials Select Sector SPDR ETF (XLB - Free Report) is thus a good pick to tap into the earnings potential for Q4.