Earnings Growth Could Power These ETFs

Core Viewpoint - The upcoming fourth-quarter earnings reports are expected to be positive, potentially calming investors and supporting the equity market, which has faced challenges recently [1]. Group 1: Earnings Expectations - S&P 500 member firms are anticipated to deliver strong Q4 results and provide optimistic guidance for the current quarter and beyond, particularly in the technology and communication services sectors [2]. - The S&P 500 is projected to achieve Q4 EPS growth of 11.7%, marking the highest year-over-year increase since Q4 2021 [4]. - There is a possibility that the S&P 500 could report a year-over-year EPS growth of 14% for the October to December period, based on late last year's earnings improvement trends [5]. Group 2: Historical Performance - Historically, actual earnings growth has surpassed estimated earnings growth in 37 of the last 40 quarters for the S&P 500, with exceptions in Q1 2020, Q3 2022, and Q4 2022 [6]. - Over the past four quarters, S&P 500 companies have exceeded estimated earnings by an average of 4.9%, with 77% of companies reporting actual EPS above the mean EPS estimate [7]. Group 3: Impact on ETFs - The Invesco QQQ Trust (QQQ) and Invesco NASDAQ 100 ETF (QQQM) are significantly influenced by S&P 500 earnings trends, as nearly 50% of their weight overlaps with the S&P 500, and 84% of their holdings are in the benchmark domestic equity gauge [3]. - The recent earnings growth in the S&P 500 is largely driven by the technology and communication services sectors, which constitute two-thirds of the portfolios of QQQ and QQQM [8].