Technology has been the best-performing sector this year thanks to the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality devices, and artificial intelligence as well as strong corporate earnings.
As a result, four popular ETFs, namely Select Sector SPDR Technology ETF (XLK - Free Report) , Vanguard Information Technology ETF (VGT - Free Report) , iShares Dow Jones US Technology ETF (IYW - Free Report) and MSCI Information Technology Index ETF (FTEC - Free Report) have also given remarkable performances this year. VGT, IYW and FTEC are up nearly 31% while XLK has added a little less of nearly 28% (read: 5 Overlooked Tech ETFs Crushing XLK).
The bullish trend is likely to continue heading into the Q3 earnings season and the FAANMG group — Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Amazon.com (AMZN - Free Report) , Netflix (NFLX - Free Report) , Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) — is once again likely to dominate the rally. Notably, Netflix reported robust results that pushed its shares to a record high (read: Netflix at Record High: ETFs to Play).
Most of the other aces are lined up to report this week and in the next. IYW has the largest concentration on Facebook, Apple, Microsoft, and Alphabet with a combined share of 43.4%, followed by 40.2% for VGT, 37.6% for XLK and 34.7% for FTEC.
Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:
According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Inside Our Surprise Prediction
Microsoft has a Zacks Rank #3 and an Earnings ESP of -1.71%, indicating less chances of beating estimates this quarter. The Zacks Consensus Estimate for third-quarter 2017 declined by a nickel over the past three months. Additionally, the stock has a VGM Style Score of D. However, it delivered positive earnings surprises in the last four quarters, with an average beat of 15.16%. The company is expected to report results after the closing bell on Oct 26.
Alphabet has a Zacks Rank #3 and an Earnings ESP of +1.77%, indicating reasonable chances of beating estimates this quarter. The earnings surprise track over the past four quarters is good with an average beat of 5.06%. However, it witnessed negative earnings estimate revision of six cents over the past 90 days for the to-be-reported quarter and has a VGM Style Score of D. The company will also report after the closing bell on Oct 26 (see: all the Technology ETFs here).
Apple is slated to release earnings after market close on Nov 2. The stock has a Zacks Rank #2 and an Earnings ESP of +1.17%, indicating solid chances of beating estimates this quarter. The iPhone maker delivered positive earnings surprises in the last four quarters, with an average beat of 3.82% and saw earnings estimate revision of a nickel over the past 90 days for the to-be-reported quarter. However, the stock has a VGM Style Score of C.
Facebook is expected to release its earnings report on Nov 1 after market close. It has a Zacks Rank #1 with an Earnings ESP of -2.36%, indicating less chances of beating estimates this quarter. Facebook delivered positive earnings surprises in the last four quarters, with an average beat of 11.30% and witnessed positive earnings estimate revision of 14 cents over the past three months for the to-be-reported quarter. The stock has a VGM Style Score of C.
Overall, the tech sector is expected to post earnings growth of 9.9% in the third quarter — the second highest of the 16 Zacks sectors in the S&P 500 — and has a solid Zacks Rank in the top 25%, suggesting some outperformance in the weeks ahead (read: 4 Favorite Sectors of Q3 Earnings and Their ETFs & Stocks).
Given the favorable Zacks Rank and positive earnings outlook, surprises may well be in the cards. This could give further boost to the technology ETFs. In particular, the four ETFs mentioned above have a Zacks ETF Rank of #1 or 2.
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