Small caps have been underperforming large caps this year. iShares Russell 2000 ETF (IWM - Free Report) and SPDR S&P 600 Small Cap ETF (SLY - Free Report) are up 18.2% and 15.8%, respectively, compared with the 24.3% gain in the S&P 500 Index. This underperformance was prevalent in the past month as well, a period packed with corporate earnings releases.
The reason could be consistently weak earnings witnessed by the small caps compared with their bigger counterparts.
Q3 Performance: S&P 600 Versus 500
The third-quarter earnings season is almost drawing to a close with 88% of the S&P 600 Index’s total participants having reported so far. Earnings are down 19.6% year over year on 1.8% higher revenues. About 62.6% members’ EPS beat estimates while 57.8% surpassed on the top line as the Earnings Trends issued on Nov 13, 2019 show.
Looking at Q3 as a whole for the small-cap index, total Q3 earnings are expected to be down 19.5% from the same period last year on 3.6% higher revenues. The decline in earnings follow an 11.7% drop in earnings in Q2 and 17.3% slump in earnings in Q1, respectively.
About 91% of the large-cap index S&P 500 has already reported earnings decline of 1.7% on 4.6% higher revenues. The S&P 500 Index has so far produced a blended beat ratio of 45.9%. For the third quarter, the S&P 500 is likely to be down 2% on 4.3% higher revenues.
Consumer Staples — Invesco S&P SmallCap Consumer Staples ETF (PSCC - Free Report)
The sector is likely to end the third quarter with 26.4% increase in earnings and a 17.2% revenue rise. The fund PSCC has gained 3.6% in the past month against 3.8% gain in the S&P 500 Index.
Consumer Discretionary — Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report)
Earnings are likely to be 12.0% higher while revenues will likely see a 10.1% uptick. However, the fund PSCD is up only 1.7% in the past month.
Medical — Invesco S&P SmallCap Health Care ETF (PSCH - Free Report)
The sector is likely to record 10% earnings growth on 2.4% higher revenues. The fund has jumped 4.7% in the past month (as of Nov 19, 2019).
Construction — Invesco Dynamic Building & Construction ETF (PKB - Free Report)
The sector is likely to record 11.3% earnings growth on 5.5% higher revenues. The fund has advanced 1.4% in the past month (as of Nov 19, 2019) (read: ETFs in Focus as US Homebuilder Sentiment Drops in November).
Finance — Invesco S&P SmallCap Financials ETF (PSCF - Free Report)
Earnings are likely to be up 12.4% year over year on 7.7% higher revenues. The fund has tacked on 1.7% gains in the past month (as of Nov 19, 2019).
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