Can Q1 Earnings Bring Strength in Dow ETF?

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After logging in the worst quarterly performance in two years, the Dow Jones Industrial Average continued its weak trading on bets over a more aggressive Fed rate hike. The combination of factors such as concerns over Russia’s invasion of Ukraine, surging oil prices, widespread inflationary pressures, and lingering worries about the ongoing pandemic added to the chaos.

The blue-chip index has declined 5.6% so far this year and SPDR Dow Jones Industrial Average ETF Trust DIA, which tracks the Dow Jones Industrial Average Index, is down 4%.

While rising yields are taking a toll on the growth sector, especially technology, an improving economy is fueling growth in the cyclical sectors. Notably, the Dow Jones has significant exposure to the cyclical sectors. Additionally, optimism over the earnings season, which will kick start this week, will rekindle investors’ confidence in the Dow Jones stocks and ETFs (read: These Q1 ETF Winners Have More Upside Left).

Total S&P 500 earnings are expected to be up 3.2% from the same period last year on 10% higher revenues. This would follow the 32.5% rise in earnings in Q4 and 41.4% growth in Q3. The earnings estimates have come down by 0.3% since the start of the period, with revisions to the energy and finance sectors moving in opposite directions to each other. Of the 16 Zacks sectors, 10 are expected to earn more than the year-ago quarter.

Transportation & aerospace will likely see huge earnings growth as both incurred losses in the corresponding quarter of last year. The other eight sectors are expected to witness positive year-over-year earnings growth. Energy is expected to be the biggest contributor to S&P 500 earnings with 199.7% growth. This is likely to be followed by basic materials (44.2%) and construction (15.8%).

DIA in Focus

SPDR Dow Jones Industrial Average ETF Trust is one of the largest and most-popular ETFs in the large-cap space with AUM of $30 billion and an average daily volume of 5.8 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components with each holding less than 10.4% share. Information technology (21.1%), healthcare (20.3%), financials (15.6%), industrials (13.9%) and consumer discretionary (13.1%) are the top five sectors.

SPDR Dow Jones Industrial Average ETF charges 16 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk.   

Nearly one-fourth of the blue-chip firms are expected to announce results this week and in the next. JPMorgan Chase JPM is expected to report on Apr 13 while Goldman GS and UnitedHealth UNH will announce earnings on April 14 each. Both International Business Machines IBM and Johnson & Johnson JNJ are scheduled to report on Apr 19. Dow Inc. DOW and Intel INTC will release earnings on Apr 21 and Apr 28, respectively (read: 5 ETFs to Bet on the Favorite Sectors of Q1 Earnings).

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

Earnings Whispers

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1, 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.

JPMorgan has a Zacks Rank #3 and Earnings ESP of -0.59%. The company saw negative earnings estimate revision of 5 cents over the past 30 days for the to-be-reported quarter. Analysts declining estimates right before earnings — with the most up-to-date information possible — is a bad indicator for the stock. JPMorgan delivered a positive earnings surprise of 26.47%, on average, in the last four quarters.

Goldman has a Zacks Rank #4 and an Earnings ESP of -1.69%. The company witnessed negative earnings estimate revision of 66 cents over the past seven days for the yet-to-be-reported quarter. Goldman’s earnings surprise track over the preceding four quarters has also been robust, the average beat being 45.93%.

UnitedHealth has a Zacks Rank #2 and an Earnings ESP of -0.58%. The stock witnessed negative earnings estimate revision of couple of cents over the past seven days for the to-be-reported quarter and delivered a positive earnings surprise of 8.35%, on average, over the last four quarters.

International Business Machines has a Zacks Rank #3 and an Earnings ESP of 0.00%. It saw no earnings estimate revision in the past 30 days for the to-be-reported quarter. International Business Machines delivered an average positive earnings surprise of 2.39% in the last four quarters.

Johnson & Johnson has a Zacks Rank #3 and an Earnings ESP of +1.09%. The company saw no earnings estimate revision over the past 30 days for the yet-to-be-reported quarter. It’s earnings surprise track over the preceding four quarters has also been robust, with the average beat being 7.77%.

Dow has a Zacks Rank #1 and an Earnings ESP of +0.22%. It saw positive earnings estimate revision of five cents over the past seven days for the to-be-reported quarter. The company came up with a beat in each of the last four quarters, the average being 11.1% (read: S&P 500 ETFs to Buy on Bullish Analyst Ratings).

Intel has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock witnessed no earnings estimate revision over the past 30 days for the soon-to-be-reported quarter and delivered a positive earnings surprise of 29.20%, on average, over the last four quarters.

Bottom Line

With some of the blue-chip companies expected to report an earnings surprise, 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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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
Dow Inc. (DOW) : Free Stock Analysis Report
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
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