Prepare for Fourth-Quarter Earnings With These ETFs

The second quarter isn’t yet over, and there’s still more than two weeks remaining before the third quarter kicks off, but investors looking to position for S&P 500 earnings growth in the fourth quarter of 2023 might now want to delay.

Market participants looking to wager on an expected fourth-quarter earnings per share (EPS) uptick have an array of exchange traded funds from which to choose. In particular, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) could be two of the more compelling ideas.

The reasoning is simple: QQQ and QQQM, both of which follow the Nasdaq-100 Index (NDX), are growth ETFs. If EPS growth arrives in earnest, it’s likely that growth stocks will be the primary drivers of those earnings gains. Indeed, estimates for EPS growth in the December quarter are stout at 8.2%. That’s well ahead of the expected increase of 0.8% in the July quarter.

Why QQQ and QQQM Matter as Fourth-Quarter Earnings Plays

Fourth-quarter EPS growth may be widespread, with nine of 11 GICS sectors expected to notch increases. However, the details matter.

“The Communication Services and Information Technology sectors are expected to be the largest contributors to earnings growth for the fourth quarter of all eleven sectors,” noted FactSet’s John Butters.

That’s pertinent to investors considering QQQ and QQQM. The Invesco ETFs allocate about two-thirds of their rosters to tech and communication services stocks. In addition, the consumer cyclical sector accounts for 15.15% of the ETFs’ rosters. However, the funds have no exposure to financial services equities.

The usual suspects could be some of the primary contributors to fourth-quarter EPS growth. That includes members of the “magnificent seven” group.

“At the company level,, Meta Platforms, Alphabet, and NVIDIA are expected to be the largest contributors to earnings growth for the S&P 500 for Q4 2023,” added Butters. In addition, analysts have increased EPS estimates for all four companies for the fourth quarter since December 31. If these four companies were excluded, the estimated earnings growth rate for the S&P 500 for Q4 2023 would fall to 4.2% from 8.2%., Meta Platforms, Alphabet, and NVIDIA combined for 25.46% of the QQQ and QQQM portfolios as of June 9.

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