The bulk of the marquee third-quarter earnings reports have already delivered and the presidential election is decided. So analysts and investors can resume focusing on earnings trends for the current quarter.
Perhaps there’s a good news/bad news scenario developing on the earnings front. In October, the amount of downward earnings per share (EPS) revisions was in line with historical averages. But forecasts for nine of the 11 S&P 500 sectors are lower. However, that’s not an indictment of ETFs like the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Yes, technology, which accounts for about half of those ETFs’ rosters, has seen fourth-quarter EPS forecast cuts. But that’s occurred at a rate below that of the broader market and a slew of other sectors. That could be one factor that works in favor of QQQ and QQQM in the months ahead, but there are others.
Some Good Earnings News for QQQ
Expectations that tech sector fourth-quarter earnings could miss early estimates could be a symptom of tough year-over-year comparisons, not broader fundamental erosion. Alone, that’s good news. But there are other positives for QQQ and QQQM. Those positives include the point that communication services is one of two sectors where fourth-quarter EPS revisions are trending higher.
That’s relevant to investors considering the Invesco ETFs. That’s because the funds allocate 16.14% of their portfolios to communication services names, resulting in the funds’ second-largest sector exposure. Plus, broader EPS cuts aren’t highly alarming on a historical basis.
“Thus, the decline in the bottom-up EPS estimate recorded during the first month of the fourth quarter was equal to the 5-year average, the 10-year average, and the 20-year average. However, it was above the 15-year average,” noted FactSet’s John Butters.
When it comes to fourth-quarter earnings and QQQ/QQQM, the ETFs could also benefit by what they’re not heavily allocated to. That is they are sectors that have experienced bearish earnings revisions.
“At the sector level, nine sectors witnessed a decrease in their bottom-up EPS estimate for Q4 2024 from September 30 to October 31, led by the Energy (-8.5%), Industrials (-4.9%), and Health Care (-4.8%) sectors,” added Butters.
Those three sectors combine for less than 12% of the QQQ/QQQM rosters, indicating the ETFs are, at least for now, somewhat buffered against the worst of fourth-quarter earnings trends.
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