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Dow ETF in Focus Going Into Q4 Earnings Announcements

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After logging in the third consecutive year of double-digit gains, the Dow Jones Industrial Average was off to a solid start in 2022 reaching new peaks. However, a spike in yields, tightening policies as well as raging Omicron variant of COVID-19 infections made investors jittery and pushed the benchmark down.

The blue-chip index dipped 0.7% in just a few trading sessions of the New Year and SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , which tracks the Dow Jones Industrial Average Index, is down 0.3% (read: Dow Jones ETF Hits New 52-Week High).

While rising yields are sparking a sell-off in the growth sector technology, improving economy and rapid vaccinations are fueling growth in the cyclical sectors. Notably, the Dow Jones has significant exposure to the cyclical sectors. Additionally, optimism over the earnings season, which will kick start this week, will rekindle investors’ confidence in the Dow Jones stocks and ETFs.

Although Q4 earnings growth is expected to decelerate significantly from the last two quarters due to rising cost pressures and supply chain disruptions, the earnings picture remains strong. Total S&P 500 earnings are expected to be up 19.8% from the same period last year on 11.6% higher revenues. This would follow the 41.5% rise in earnings in Q3 and 95.1% growth in Q2.

Of the 16 Zacks sectors, 11 are expected to earn more relative to the year-ago quarter. Energy, transportation & aerospace will likely see huge earnings growth from the year-ago-quarter as aerospace had incurred loss while energy and transportation barely reported positive earnings. The other eight sectors are expected to witness positive year-over-year earnings growth. Basic materials is expected to be the biggest contributor to S&P 500 earnings with 80.3% growth. This is likely to be followed by consumer discretionary (46.5%), construction (22.2%) and medical (16.9%).

DIA in Focus

SPDR Dow Jones Industrial Average ETF Trust is one of the largest and most-popular ETFs in the large-cap space with AUM of $31 billion and an average daily volume of 5 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components with each holding less than 8.5% share. Information technology (21.6%), healthcare (17.4%), financials (16.5%), industrials (15%) and consumer discretionary (14.7%) are the top five sectors (read: 5 Sector ETFs to Bet on Ahead of Q4 Earnings).

SPDR Dow Jones Industrial Average ETF charges 16 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk.   

Nearly one-fourth of the blue-chip firms are expected to announce results this week and in the next. JPMorgan Chase (JPM - Free Report) is expected to report on Jan 14 while Goldman (GS - Free Report) and UnitedHealth (UNH - Free Report) will announce earnings on Jan 18 and Jan 19, respectively. International Business Machines (IBM - Free Report) is scheduled to report on Jan 24 while Johnson & Johnson (JNJ - Free Report) is expected to release earnings on Jan 25. Intel (INTC - Free Report) and Dow Inc. (DOW - Free Report) will release earnings on Jan 26 and Jan 27, respectively.

Let’s delve deeper into the fourth-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.

JPMorgan has a Zacks Rank #3 and Earnings ESP of -1.75%. The company saw positive earnings estimate revision of 5 cents over the past seven 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. JPMorgan delivered an average surprise of 33.37% in the last four quarters. The stock has a Momentum Score of A.

Goldman has a Zacks Rank #2 and an Earnings ESP of 0.00%. The company witnessed positive earnings estimate revision of 4 cents over the past seven days for the yet-to-be-reported quarter. Goldman’s earnings surprise track over the preceding four quarters has also been robust, the average beat being 66.8%. The stock has a Momentum Score of A.

UnitedHealth has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 8.66%, on average, over the last four quarters. UnitedHealth has a VGM Score of B.

International Business Machines has a Zacks Rank #2 and an Earnings ESP of -7.04%. It saw negative earnings estimate revision of 16 cents in the past 30 days for the to-be-reported quarter. International Business Machines came up with a beat in each of the last four quarters, the average being 6.76%. It has a Value Score of A (read: Profit From the Tech Sell-Off With These Inverse ETFs).

Johnson & Johnson has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company saw no earnings estimate revision over the past seven days for the yet-to-be-reported quarter. It’s earnings surprise track over the preceding four quarters has also been robust, with the average beat being 8.34%. Johnson & Johnson has a VGM Score of B.

Intel has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock witnessed no earnings estimate revision over the past 30 days for the soon-to-be-reported quarter and delivered an earnings surprise of 33.46%, on average, over the last four quarters. Intel has a VGM Score of B.

Dow has a Zacks Rank #3 and an Earnings ESP of -5.06%. It saw negative earnings estimate revision of four cents over the past seven days for the to-be-reported quarter. The company came up with a beat in each of the last four quarters, the average being 14.12%. Dow has a VGM Score of A.

Bottom Line

With some of the blue-chip companies expected to report an earnings surprise, 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.