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Tap 6 Sector ETFs on Earnings Growth Potential

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The Q2 earnings season is in full swing. Per the Earnings Trends issued on Jul 20, 2022, for the 60 S&P 500 companies that have reported Q2 results, total earnings are down 11% from the year-earlier period on 6.6% higher revenues, with 73.3% beating EPS estimates and 63.3% beating revenue estimates.

The drag from the Finance sector accounts for most of the earnings decline, with the year-over-year growth pace rising to 12% for the companies that have reported when the Finance sector is excluded from the numbers.

Against this backdrop, below we highlight a few sector ETFs that are likely to gain ahead on earnings strength.

Sector ETFs in Focus 

Basic Materials – iShares U.S. Basic Materials ETF (IYM - Free Report) – Zacks Rank #1 (Strong Buy)

The sector is likely to record earnings growth of 15.4% in Q2 over 18.3% expansion in revenues.

Upbeat activities in the infrastructure and industrials sectors made demand for materials high. Orders of Chemical Products remained strong. The chemical industry takes about considerable portion of the fund IYM.

Construction – iShares U.S. Infrastructure ETF (IFRA - Free Report) – Zacks Rank #3 (Hold)

The sector is likely to record earnings growth of 18.8% in Q2 over 16.1% uptick in revenues.

Employment in construction has been in decent shape in recent months, indicating upbeat activities. Activities in Specialty trade contractors and heavy and civil engineering construction remain notable.

Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) – Zacks Rank #1

The sector is likely to record earnings growth of 5% in Q2 over a 21.3% upside in revenues.

Americans are now moderately optimistic about the economy. After falling to their lowest points in more than a decade, the University of Michigan’s Consumer Sentiment index edged up 51.1 in July from 50.0 in June. Rising consumer confidence bodes well for household spending in the coming months. The latest retail sales data , which came in upbeat, also point to this fact (read: Buy Discretionary ETFs on Improving Consumer Sentiment).

Industrials – Industrial Select Sector SPDR ETF (XLI - Free Report) – Zacks Rank #2

The sector is likely to record earnings growth of 7.7% in Q2 over a 10.7% uptick in revenues.

Industrial activities have been robust in July. Employment in manufacturing (+29,000) was upbeat in June. Employment in manufacturing decreased by 29,000 from its level in February 2020.

Consumer Staples – Vanguard Consumer Staples ETF (VDC - Free Report)

The sector is likely to record earnings expansion of 5.4% in Q2 over a 4.6% increment in revenues.

Though the sector ETF VDC has a Zacks Rank #4 (Sell), the earnings picture is pretty decent for the staples sector. The sector is non-cyclical in nature and may fare better in a recessionary environment.

Autos – First Trust SNetwork Future Vehicles & Technology ETF (CARZ - Free Report) -- Zacks Rank #3 (Hold)

The sector is likely to record earnings expansion of 19.2% in Q2 over a 19.4% rise in revenues.

Sales of Motor Vehicle & Parts Dealers gained 0.8% sequentially in June but remained flat year over year. Moreover, the price inflation of new cars has been palpable. The price inflation index for new vehicles increased 0.7% in June after rising 1% the previous month. Both factors indicate that the business conditions remained favorable for the auto industry (read: 5 Sector ETFs to Win from a 9% U.S. Inflation).