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What Lies Ahead for Dow ETF in Q2 Earnings?

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After suffering its biggest first-half percentage plunge since 1962, the Dow Jones Industrial Average kicked off the second half with stability. A strong jobs report and a drop in commodity prices brought back the lure for riskier assets.

The blue-chip index gained 0.8% last week and SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , which tracks the Dow Jones Industrial Average Index, is also up 8.5%. The trend is likely to continue heading into the earnings season.

Total S&P 500 earnings are expected to be up 1.8% from the same-period last year, while the revenues are estimated to rise 9.7%. In addition to inflation, logistical challenges and macroeconomic uncertainty, which were the recurring themes in the last couple of quarterly reporting cycles, the companies are expected to cite the strong U.S. dollar as another headwind this earnings season (read: Tap Dollar Strength With These ETFs).

Of the 16 Zacks sectors, 10 are expected to record earnings growth in the second quarter, with the strongest gains in energy (up 191.3%). This will be followed by transportation (132.5%), autos (22.1%), construction (20.7%), basic materials (18.4%) and business services (8.2%) sectors.

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 an AUM of $26.7 billion and an average daily volume of 4.7 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components with each holding less than 11% share. Healthcare (21.7%), information technology (21.3%), financials (15.2%), consumer discretionary (13.6%) and industrials (13.1%) are the top five sectors.

SPDR Dow Jones Industrial Average ETF charges 16 bps as annual fees and has a Zacks ETF Rank #1 (Strong 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 Jul 14 while UnitedHealth (UNH - Free Report) will announce earnings on Jul 15. Both Goldman (GS - Free Report) and International Business Machines (IBM - Free Report) are scheduled to report on Jul 18 each while Johnson & Johnson (JNJ - Free Report) will report on Jul 19. Dow Inc. (DOW - Free Report) and Intel (INTC - Free Report) will release earnings on Jul 21 and Jul 28, respectively (read: Tap Q2 Earnings Growth With Sector ETFs).

Let’s delve deeper into the second-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, 2 (Buy) 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 #2 and an Earnings ESP of +1.32%. The stock has seen a positive earnings estimate revision of 3 cents over the past 30 days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information — is a good indicator for the stock. JPM delivered an earnings surprise of 13.67%, on average, in the last four quarters.

UnitedHealth has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock has witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 3.73%, on average, over the last four quarters (read: 5 ETFs Riding High on the Biotech Comeback).

Goldman has a Zacks Rank of 3 and an Earnings ESP of -9.56%. The stock has witnessed a negative earnings estimate revision of 5 cents over the past seven days for the yet-to-be-reported quarter. GS’s earnings surprise track over the preceding four quarters was robust, the average being 29.67%.

International Business Machines has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock has seen zero earnings estimate revision in the past 30 days for the to-be-reported quarter. IBM delivered an earnings surprise of 2.02%, on average, in the last four quarters.

Johnson & Johnson has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock has witnessed no earnings estimate revision over the past 30 days for the yet-to-be-reported quarter. JNJ’s earnings surprise track over the preceding four quarters was also robust, the average being 5.41%.

Dow has a Zacks Rank #3 and an Earnings ESP of -0.12%. The stock has seen a negative earnings estimate revision of a couple of cents over the past seven days for the to-be-reported quarter. DOW came up with a beat in each of the last four quarters, the average being 9.17%.

Intel has a Zacks Rank #4 and an Earnings ESP of +12.25%. The stock has witnessed a 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 26.17%, on average, over the last four quarters.

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.