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What's in Store for Dow ETFs in Q1 Earnings?

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After the persistent slide in March, the Dow Jones has shown strength this month on signs of a slowdown in the number of hospitalizations and intensive-care admissions in New York and Europe. Additionally, the large fiscal and monetary stimulus by the Federal Reserve and the government has added to the strength. In its latest move, the Fed rolled out a massive $2.3-trillion program last week to aid local governments and businesses impacted by the coronavirus pandemic (read: Top & Flop ETF Zones of Last Week).

However, the earnings picture looks weak for Q1, given that the coronavirus pandemic will weigh on the profitability of the companies. Layoffs and jobless claims have risen unprecedentedly with businesses scaling back or temporarily shutting down their operations. Spending — the engine of the U.S. economy — has collapsed. Revenues of restaurants, hotels, movie theaters, gyms, and airlines have been badly hit with many of them on the brink of bankruptcy.

This could weigh on Dow Jones’ performance in the coming weeks. As such, its proxy version, SPDR Dow Jones Industrial Average ETF DIA, which tracks this benchmark, is under the spotlight.

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of $19.7 billion and average daily volume of 4.7 million shares. Holding 31 blue chip stocks, the fund is widely spread across components with each holding less than 7.8% share. Information technology (23.9%), healthcare (15.1%), financials (14.2%), industrials (14.1%), and consumer discretionary (13.6%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk.  

Let’s delve deeper into the first-quarter earnings picture that will likely aid the fund in the coming days.

Q1 Earnings Projections

S&P 500 earnings are expected to declin 8.6% year over year despite 1.6% higher revenues. The earnings projection is down from around 4% earnings growth expected in early January and indicates bigger decline when compared to the recent quarters. Earnings growth is expected to be negative for 11 of the 16 Zacks sectors. Autos and energy are expected to be the biggest drags with expected earnings decline of 68.3% and 42.4%, respectively. On the other hand, business services and construction are expected to post earnings growth of 4.9% and 4.1%, respectively (read: Any Bright Spot in Q1 Earnings? Sector ETFs & Stocks to Buy).

So far, four blue chip firms in the index have already reported their earnings. JPMorgan Chase JPM Q1 results missed expectations due to massive provisions for credit losses as the economy attempts to bail out small- and medium-sized businesses affected by the coronavirus crisis. Goldman Sachs GS outpaced the Zacks Consensus Estimate on both earnings and revenues.

The world's biggest healthcare products maker Johnson & Johnson JNJ continued its long streak of earnings beat and outpaced revenue estimates. However, it lowered its full-year forecast due to coronavirus shutdowns. Meanwhile, the largest U.S. health insurer UnitedHealth Group UNH also breezed past the Zacks Consensus Estimate on earnings and revenues.

More than 10% of the companies are expected to announce results this week and the next.

Earnings Whispers

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Intel INTC has a Zacks Rank #3 and an Earnings ESP of -2.60%. The stock witnessed negative earnings estimate revision of a couple of cents over the past 30 days for the to-be-reported quarter but delivered average trailing four-quarter positive surprise of 14.63. The company is expected to report on Apr 23 after market close.

American Express AXP has a Zacks Rank #4 and an Earnings ESP of -1.07%. It saw negative earnings estimate revision of 25 cents over the past month for the to-be-reported quarter. However, the company has an average positive surprise of 0.87% in the trailing four quarters. It is scheduled to report on Apr 24 before market open.

International Business Machines IBM has a Zacks Rank #4 and an Earnings ESP of -23.96%. It has seen negative earnings estimate revision of 26 cents in the past 30 days for the to-be-reported quarter. However, the stock came up with a beat in each of the last four quarters, the average being 1.84%. IBM is scheduled to release its earnings on Apr 20 after market close (read: Top-Ranked ETFs & Stocks to Buy From Bargain Industries).

Procter & Gamble Company PG has a Zacks Rank #3 and an Earnings ESP of +0.80%. The stock saw negative earnings estimate revision of a penny over the past 30 days for the soon-to-be-reported quarter but delivered average negative surprise of 4.96% over the last four quarters. The company is expected to report on Apr 21 before market open.

The Travelers Companies Inc. TRV, which is scheduled to report on Apr 21 before market opens, has a Zacks Rank #3 and an Earnings ESP of +3.58%. The stock saw no earnings estimate revision over the past 30 days for the soon-to-be-reported quarter and delivered average negative surprise of 11.40% over the last four quarters.

Bottom Line

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

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