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Bank of America's numbers after reports from 405 S&P 500 companies reveal that the index is expected to record 4% profit growth with real sales sliding 2%. Earnings calls also showed a near record of "weak demand," per BofA, a Yahoo Finance article noted. Companies were able to generate profits (despite weak demand) through cost-cutting measures.
But this story of cost savings can’t last long and the weak demand may call for recessionary threats. Against this backdrop, sectors have recorded upbeat revenue growth, implying their strength.
Per the Earnings Trends issued on Nov 1, 2023, 62.2% of the S&P 500 companies have reported so far in Q3, with a 2.3% uptick in earnings and 2% growth in revenues. In Q3, about five out of the Zacks classified 16 sectors of the S&P 500 have witnessed a decline in revenues so far, while eight sectors have reported earnings growth.
Below, we highlight five sectors and their related ETFs that could be used to book some profits on best revenue growth recorded so far.
The sector witnessed revenue growth of 10.2% in Q3 on 64.2% earnings growth. The fund XRT has a Zacks Rank #2 (Buy).
Retail sales in the United States grew 0.7% sequentially in September 2023, following an upwardly revised 0.8% uptick in August and beating forecasts of a 0.3% advance. There was also a 0.5% rise in sales in July. Thus, the upbeat revenue growth of the sector makes sense (read: 5 ETF Areas & Stocks to Win on Upbeat September Retail Sales).
The sector witnessed revenue growth of 8.2% in Q3 on 53.8% earnings growth. The fund XLY has a Zacks Rank #1 (Strong Buy).
Consumer spending, as measured by personal consumption expenditures, improved 4% in the third quarter of 2023 after rising just 0.8% in Q2, and was responsible for 2.7 percentage points of the total GDP increase in Q3. The real GDP grew at an annual rate of 4.9%. A report from Adobe Analytics shows that online sales during the holiday season are projected to jump 4.8% year over year. (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).
Auto – First Trust S-Network Future Vehicles & Technology ETF (CARZ - Free Report)
The sector witnessed revenue growth of 8.9% in Q3 on an 8.5% decline in earnings. The fund CARZ has a Zacks Rank #3 (Hold).
Decent sales of Motor Vehicle & Parts and the price inflation of new cars have been palpable. Both factors indicate that the sales conditions remained favorable for the auto industry (read: 5 ETF Areas & Stocks to Win on Upbeat September Retail Sales).
The sector witnessed revenue growth of 8.8% in Q3 on 56.6% expansion in earnings. The fund ITA has a Zacks Rank #2.
Rising geopolitical tensions, rising M&A activities and cheaper valuation have been the tailwinds behind the sector. Additionally, increasing tensions could lead to a rise in defense expenditures by the United States and its European counterparts, going forward, benefiting defense stocks.
The sector witnessed revenue growth of 8.4% in Q3 on 4.3% expansion in earnings. The fund ITA has a Zacks Rank #1.
As the short-term rates did not surge much (as the Fed keeps the rate same) and long-term rates soared on decent economic activities, yield curve steepened somewhat in the recent past. This resulted in a higher interest rate margin for banks and financial institutions. Plus, a cheaper valuation calls for future strength in this ETF (read: Fed Rate Hikes Peaking? Top-Ranked ETFs to Buy).
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Q3 Earnings Midway: 5 Sector ETFs to Bet on Revenue Growth
The ongoing third-quarter earnings season is expected to be the first quarter of positive earnings per share growth for S&P 500 companies since the third quarter of 2022. But DataTrek research said that investors will likely see “excellent earnings but lackluster revenue growth,” as quoted on Yahoo Finance.
Bank of America's numbers after reports from 405 S&P 500 companies reveal that the index is expected to record 4% profit growth with real sales sliding 2%. Earnings calls also showed a near record of "weak demand," per BofA, a Yahoo Finance article noted. Companies were able to generate profits (despite weak demand) through cost-cutting measures.
But this story of cost savings can’t last long and the weak demand may call for recessionary threats. Against this backdrop, sectors have recorded upbeat revenue growth, implying their strength.
Per the Earnings Trends issued on Nov 1, 2023, 62.2% of the S&P 500 companies have reported so far in Q3, with a 2.3% uptick in earnings and 2% growth in revenues. In Q3, about five out of the Zacks classified 16 sectors of the S&P 500 have witnessed a decline in revenues so far, while eight sectors have reported earnings growth.
Below, we highlight five sectors and their related ETFs that could be used to book some profits on best revenue growth recorded so far.
Retail – SPDR S&P Retail ETF (XRT - Free Report)
The sector witnessed revenue growth of 10.2% in Q3 on 64.2% earnings growth. The fund XRT has a Zacks Rank #2 (Buy).
Retail sales in the United States grew 0.7% sequentially in September 2023, following an upwardly revised 0.8% uptick in August and beating forecasts of a 0.3% advance. There was also a 0.5% rise in sales in July. Thus, the upbeat revenue growth of the sector makes sense (read: 5 ETF Areas & Stocks to Win on Upbeat September Retail Sales).
Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report)
The sector witnessed revenue growth of 8.2% in Q3 on 53.8% earnings growth. The fund XLY has a Zacks Rank #1 (Strong Buy).
Consumer spending, as measured by personal consumption expenditures, improved 4% in the third quarter of 2023 after rising just 0.8% in Q2, and was responsible for 2.7 percentage points of the total GDP increase in Q3. The real GDP grew at an annual rate of 4.9%. A report from Adobe Analytics shows that online sales during the holiday season are projected to jump 4.8% year over year. (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).
Auto – First Trust S-Network Future Vehicles & Technology ETF (CARZ - Free Report)
The sector witnessed revenue growth of 8.9% in Q3 on an 8.5% decline in earnings. The fund CARZ has a Zacks Rank #3 (Hold).
Decent sales of Motor Vehicle & Parts and the price inflation of new cars have been palpable. Both factors indicate that the sales conditions remained favorable for the auto industry (read: 5 ETF Areas & Stocks to Win on Upbeat September Retail Sales).
Aerospace – iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
The sector witnessed revenue growth of 8.8% in Q3 on 56.6% expansion in earnings. The fund ITA has a Zacks Rank #2.
Rising geopolitical tensions, rising M&A activities and cheaper valuation have been the tailwinds behind the sector. Additionally, increasing tensions could lead to a rise in defense expenditures by the United States and its European counterparts, going forward, benefiting defense stocks.
Financials – Financial Select Sector SPDR ETF (XLF - Free Report)
The sector witnessed revenue growth of 8.4% in Q3 on 4.3% expansion in earnings. The fund ITA has a Zacks Rank #1.
As the short-term rates did not surge much (as the Fed keeps the rate same) and long-term rates soared on decent economic activities, yield curve steepened somewhat in the recent past. This resulted in a higher interest rate margin for banks and financial institutions. Plus, a cheaper valuation calls for future strength in this ETF (read: Fed Rate Hikes Peaking? Top-Ranked ETFs to Buy).