Some Growth Sectors Doing Their Earnings Season Jobs

With second-quarter earnings season in the late innings, some trends are becoming clear. Those include the number of positive surprises and the depth of those surprises falling below historical averages.

On the surface, that sounds ominous, but a deeper examination reveals that some sectors are delivering for investors this earnings season. Those include high-octane groups that loom large in exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Last week’s declines notwithstanding, QQQ and QQQM are performing admirably amid a spate of recent earnings tests, as highlighted by gains of 1.25% over the past month.

QQQ and QQQM are growth-heavy ETFs, and some of the growth sectors to which these funds allocate heavily are doing their jobs this earnings season.

“During the past week, positive earnings surprises reported by companies in multiple sectors (led by the Consumer Discretionary, Health Care, and Information Technology sectors) were responsible for the decrease in the overall earnings decline for the index over this period,” noted FactSet’s John Butters.

In order, technology, consumer cyclical, and healthcare stocks combine for about 70% of the QQQ and QQQM rosters.

Consumer Cyclical, Tech Loom Large

Helped in large part by Amazon’s (NASDAQ: AMZN) impressive earnings report on August 3, consumer discretionary stocks are showing signs of earnings life.

“Since June 30, positive earnings surprises reported by companies in multiple sectors (led by the Consumer Discretionary and Information Technology sectors), partially offset by downward revisions to EPS estimates for a company in the Health Care sector, have been responsible for the decrease in the earnings decline for the index during this period,” added Butters.

Earnings strength in the consumer cyclical sector is important to QQQ and QQQM investors because that sector is the third-largest in the Invesco ETFs, accounting for nearly 14% of the funds’ rosters. At a weight of 5.11%, Amazon is the standout of the ETFs’ consumer cyclical lineups.

Among the other marquee sector exposures in QQQ and QQQM, some are also making their contributions felt when it comes to earnings growth.

“Eight of the eleven sectors are reporting year-over-year earnings growth, led by the Consumer Discretionary and Communication Services sectors. On the other hand, three sectors are reporting a year-over-year decline in earnings: Energy, Materials, and Health Care,” concluded Butters.

Communication services stocks account for 15.66% of QQQ and QQQM. The ETFs have no materials exposure and scant allocations to utilities and energy equities.

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