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Dow ETF in Focus Ahead of Q2 Earnings

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After the worst first half performance since 2010, the Dow Jones has shown some strength at the start of the second half. This is especially true as the blue-chip index had its best day in a month on Jul 9, which pushed back the index to a positive territory for the year. The gains came on the back of a strong jobs report and Q2 earnings optimism amid trade tensions (read: Winning & Losing Sector ETFs From June Jobs Data).  

Further, the index closed above its 50-day moving average for the first time in nearly three weeks, a positive sign for its short-term momentum trend. As such, its proxy version, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , is in the spotlight heading into the earnings season.

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of more than $20.6 billion and average daily volume of 5.5 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 10% share. Industrials (22%), information technology (18.3%), financials (15.2%), consumer discretionary (14.8%) and healthcare (13.2%) are the top five sectors. DIA charges 17 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.  

Let’s delve into the Q2 earnings picture that will likely set up the movement of the fund in the coming days.

Q2 Earnings Trends

Total Q2 earnings are expected to grow 19% from the same period last year on 8.1% higher revenues with 11 of the 16 Zacks sectors expected to have double-digit earnings growth. This would represent the third consecutive quarter of double-digit earnings growth, a trend that is currently expected to continue in the second half of the year (read: 5 Safe and Sound ETF Strategies for 2H).

Nearly one-fourth of the blue chip firms are expected to announce their results this week and in the next. JPMorgan Chase (JPM - Free Report) is expected to release its results on Jul 13.

UnitedHealth Group (UNH - Free Report) , Johnson & Johnson (JNJ - Free Report) and Goldman (GS - Free Report) are scheduled to report on Jul 17 while International Business Machines (IBM - Free Report) and American Express (AXP - Free Report) will report on Jul 18. Other companies like Procter & Gamble Company (PG - Free Report) will come up with their reports on Jul 31, while General Electric (GE - Free Report) has their earnings release slated for Jul 20.

Earnings Whisper

According to 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 Zacks Rank #4 or 5 (Sell rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JPMorgan has a Zacks Rank #3 and an Earnings ESP of +0.75%, indicating a reasonable chance of beating estimates this quarter. The company delivered an average positive earnings surprise of 7.35% in the last four quarters and saw positive earnings estimate revisions of a couple of cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Score of F.

UnitedHealth has a Zacks Rank #3 and an Earnings ESP of +0.59%. The stock saw no earnings estimate revision for the yet-to-be-reported quarter over the past 90 days and delivered a positive earnings surprise of 3.64% in the last four quarters. The stock has a top VGM Score of A.

Johnson & Johnson also has reasonable chances of beating estimates this quarter with a Zacks Rank #3 and an Earnings ESP of +0.18%. It witnessed negative earnings estimate revisions of a penny in the past three months for the to-be-reported quarter but delivered a positive earnings surprise of 2.86% in the last four quarters. The stock has a VGM Score of A (read: Biotech ETFs Surge on Biogen's Positive Drug Trial Result).

Goldman has a Zacks Rank #3 and an Earnings ESP of -0.54%, indicating less chances of beating estimates this quarter. The earnings surprise track over the past four quarters is robust with an average positive surprise of 18.13%. The company witnessed positive earnings estimate revision of 5 cents over the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of C.

International Business Machines has a Zacks Rank #3 and an Earnings ESP of +0.33%, indicating a reasonable chance of beating estimates this quarter. The stock delivered a positive earnings surprise in the last four quarters, with an average beat of 2.92% and saw earnings estimate revision of 5 cents in the past 90 days for the to-be-reported quarter. The stock has a VGM Score of B.

American Express has a Zacks Rank #3 and an Earnings ESP of -2.21%, indicating less chances of beating estimates this quarter. The company delivered positive earnings surprise in three of the last four quarters, with an average beat of 3.52% and saw no earnings estimate revision over the past three months for the to-be-reported quarter. The stock has a VGM Score of D.

Procter & Gamble Company has a Zacks Rank #4 and an Earnings ESP of -1.47. Though the earnings surprise track over the last four quarters is good with an average beat of 4.09%, the stock saw negative earnings estimate revisions of a couple of cents in the past 90 days for the to-be-reported quarter and has a VGM Score of C (read: Consumer Staples ETFs Riding High on Trade War Fears).

General Electric has a Zacks Rank #4 and an Earnings ESP of -2.30%. The company delivered a positive earnings surprise of 3.27% in the last four quarters but witnessed negative earnings estimate revision of 5 cents in the past 90 days for the yet-to-be-reported quarter. It has a VGM Score of D.

Bottom Line

With earnings of most blue-chip companies scheduled over the coming weeks and renewed strength in the stock market, investors should closely monitor the movement of the Dow ETF and grab any opportunity from a surge in any of the 30 stocks.

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