An avalanche of S&P 500 earnings reports will be arriving over the next two weeks. Market participants will be watching to see what companies are living up to and beating earnings per share (EPS) forecasts.
It’s likely some of the usual suspects will drive S&P 500 EPS gains. And that’s not only for the fourth quarter, but over the course of 2024. That could prove meaningful for ETFs, including the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
In the case of earnings growth and support, “usual suspects” could easily mean the magnificent cohort of Apple (AAPL), Alphabet (GOOG), Meta Platforms (META), Amazon.com (AMZN), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA). All of those are represented in QQQ and QQQM.
Big Earnings Expectations for the Magnificent Seven
Should those seven aforementioned names deliver the EPS goods, benefits could accrue to QQQ and QQQM. Fortunately, that outcome may come to fruition. Bank of America equity and quant strategist Savita Subramanian recently observed that, sans Tesla, the other six members of that cohort will be the biggest contributors to fourth-quarter EPS gains for the S&P 500.
Last week, “Jeffrey Buchbinder, chief equity strategist for LPL Financial, followed up on that with a terrific chart noting that the ‘Magnificent Seven’ have been driving the quarterly earnings for the S&P 500 every quarter last year except the first quarter. And they are expected to continue driving S&P earnings through the third quarter of 2024,” reported Bob Pisani for CNBC.
With economic growth expected to be modest this year, defensive sectors could be poised to deliver anemic earnings growth. As a result, investors could continue leaning into higher EPS growth sectors. Two such sectors would be technology and communication services. They are the two largest sector exposures in QQQ and QQQM.
Some other QQQ/QQQM member firms could get in on the act in terms of 2024 upside. Those include NetFlix (NFLX). That is one of the largest communication services holdings in the Invesco ETFs.
“The rationalization of the streaming industry is starting and NFLX’s dominance is becoming even clearer,” said Loop Capital analyst Allan Gould in a recent note. “As the traditional studios pivot their strategy from profit to growth, not only is the competition raising subscription prices and reducing content spend, but they are again licensing content to NFLX — even DIS and HBO. Our view is that the competitive environment is improving, consolidation should eliminate some competition, and these factors should lead to upside bias in future estimates.”
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