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4 Sector ETFs to Capitalize on Q2 Earnings Potential
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The second-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. Earnings estimates have been stabilizing after consistently coming down for almost a year and have actually started to go up for some key sectors. A combination of favorable macroeconomic developments and optimism about the transformational power of artificial intelligence (AI) appears to be driving market optimism.
Total S&P 500 earnings are expected to be down 9.7% from the same period last year on 0.5% lower revenues, per the latest Earnings Trends. This would represent the third consecutive quarter of earnings declines and follow the 3.4% decline in Q1 and the 5.4% drop in Q4 2022. Though estimates have come down from the 7.2% earnings decline projected at the start of the second quarter, the magnitude of negative revision is smaller relative to the recent comparable periods (read: 5 Growth ETFs at New Highs to Start 2H).
Of the 16 Zacks sectors, five are expected to post positive earnings growth in the second quarter, with the strongest gains in the Consumer Discretionary (11.3%) sector. This would be followed by Financials (10.9%), Industrial Products (4.7%), Retail (4.5%) and Business Services (1.3%).
Analysts expect companies in the S&P 500 to report an earnings drop of 7.2% from the same period a year earlier, according to FactSet. That would mark the largest earnings decline reported by the index since Q2 2020.
Given this, we have highlighted one ETF from the above-mentioned sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
Consumer Discretionary
The U.S. economy has been showing resilience in the face of the Fed’s aggressive monetary policy tightening. Economic activity continued to expand at a modest pace, with job gains being robust, the unemployment rate remaining low and inflation moderating. Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) is the largest and most popular product in this space, with AUM of $17 billion and an average daily volume of around 4.5 million shares. It offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index (read: Cyclical Sector ETFs to Drive Away Fed Rate Hike Fears).
Consumer Discretionary Select Sector SPDR Fund holds 53 securities in its basket, with key holdings in Automobiles, Broadline Retail, Hotels, Restaurants & Leisure, and Specialty Retail with a double-digit allocation each. Consumer Discretionary Select Sector SPDR Fund charges 0.10% in expense ratio and has a Zacks ETF Rank #1 with a Medium risk outlook.
Financials
With the Fed still on a rising rate spree, the financial sector should benefit. Financial Select Sector SPDR Fund (XLF - Free Report) is the ultra-popular ETF that seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It follows the Financial Select Sector Index, charging investors 10 bps in fees per year.
Financial Select Sector SPDR Fund has AUM of $33 billion and trades in an average daily volume of 44 million shares. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
Industrial Products
The industrials sector is set to benefit as business conditions have improved, and demand seems to be solid. First Trust Industrials/Producer Durables AlphaDEX Fund (FXR - Free Report) , with a Zacks ETF Rank #2 and a Medium risk outlook, looks like an exciting pick.
First Trust Industrials/Producer Durables AlphaDEX Fund tracks the StrataQuant Industrials Index and offers exposure to 132 U.S. companies. It has spread out exposure to various industries like Industrial Support Services, Industrial Transportation, General Industrials, Construction and Materials, and Aerospace and Defense. First Trust Industrials/Producer Durables AlphaDEX Fund has an AUM of $1.7 billion and an average daily volume of around 159,000 shares. It charges 61 bps in annual fees.
Retail
SPDR S&P Retail ETF (XRT - Free Report) tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 87 stocks in its basket, with none making up for more than 1.7% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in specialty retail, automotive retail, apparel retail, and broadline retail (read: 5 ETF Trends to Watch in Second-Half 2023).
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $464.4 million and an average trading volume of 5.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
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4 Sector ETFs to Capitalize on Q2 Earnings Potential
The second-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. Earnings estimates have been stabilizing after consistently coming down for almost a year and have actually started to go up for some key sectors. A combination of favorable macroeconomic developments and optimism about the transformational power of artificial intelligence (AI) appears to be driving market optimism.
Total S&P 500 earnings are expected to be down 9.7% from the same period last year on 0.5% lower revenues, per the latest Earnings Trends. This would represent the third consecutive quarter of earnings declines and follow the 3.4% decline in Q1 and the 5.4% drop in Q4 2022. Though estimates have come down from the 7.2% earnings decline projected at the start of the second quarter, the magnitude of negative revision is smaller relative to the recent comparable periods (read: 5 Growth ETFs at New Highs to Start 2H).
Of the 16 Zacks sectors, five are expected to post positive earnings growth in the second quarter, with the strongest gains in the Consumer Discretionary (11.3%) sector. This would be followed by Financials (10.9%), Industrial Products (4.7%), Retail (4.5%) and Business Services (1.3%).
Analysts expect companies in the S&P 500 to report an earnings drop of 7.2% from the same period a year earlier, according to FactSet. That would mark the largest earnings decline reported by the index since Q2 2020.
Given this, we have highlighted one ETF from the above-mentioned sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
Consumer Discretionary
The U.S. economy has been showing resilience in the face of the Fed’s aggressive monetary policy tightening. Economic activity continued to expand at a modest pace, with job gains being robust, the unemployment rate remaining low and inflation moderating. Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) is the largest and most popular product in this space, with AUM of $17 billion and an average daily volume of around 4.5 million shares. It offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index (read: Cyclical Sector ETFs to Drive Away Fed Rate Hike Fears).
Consumer Discretionary Select Sector SPDR Fund holds 53 securities in its basket, with key holdings in Automobiles, Broadline Retail, Hotels, Restaurants & Leisure, and Specialty Retail with a double-digit allocation each. Consumer Discretionary Select Sector SPDR Fund charges 0.10% in expense ratio and has a Zacks ETF Rank #1 with a Medium risk outlook.
Financials
With the Fed still on a rising rate spree, the financial sector should benefit. Financial Select Sector SPDR Fund (XLF - Free Report) is the ultra-popular ETF that seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It follows the Financial Select Sector Index, charging investors 10 bps in fees per year.
Financial Select Sector SPDR Fund has AUM of $33 billion and trades in an average daily volume of 44 million shares. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
Industrial Products
The industrials sector is set to benefit as business conditions have improved, and demand seems to be solid. First Trust Industrials/Producer Durables AlphaDEX Fund (FXR - Free Report) , with a Zacks ETF Rank #2 and a Medium risk outlook, looks like an exciting pick.
First Trust Industrials/Producer Durables AlphaDEX Fund tracks the StrataQuant Industrials Index and offers exposure to 132 U.S. companies. It has spread out exposure to various industries like Industrial Support Services, Industrial Transportation, General Industrials, Construction and Materials, and Aerospace and Defense. First Trust Industrials/Producer Durables AlphaDEX Fund has an AUM of $1.7 billion and an average daily volume of around 159,000 shares. It charges 61 bps in annual fees.
Retail
SPDR S&P Retail ETF (XRT - Free Report) tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 87 stocks in its basket, with none making up for more than 1.7% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in specialty retail, automotive retail, apparel retail, and broadline retail (read: 5 ETF Trends to Watch in Second-Half 2023).
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $464.4 million and an average trading volume of 5.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.