With the imminent arrival of 2025, investors may take heed of a flurry of earnings prognostications for the new year. Broadly speaking, the news is encouraging. However, there are sector-level differences to mind.
In terms of both earnings per share and revenue growth, technology will likely lead 2025. That could bode well for a variety of exchange traded funds. With the Magnificent Seven cohort forecast to deliver market-beating EPS next year, the newly minted Invesco Top QQQ ETF (QBIG) could be an ETF to watch next year.
QBIG debuted earlier this month as part of Invesco’s expansion of its famed suite of Nasdaq 100 Index-linked ETFs. The actively managed ETF attempts to generate returns in excess of the Nasdaq-100 Mega Index. Said another way, QBIG is nearly a Magnificent Seven ETF because those are its holdings, in addition to semiconductor giant Broadcom (AVGO) and Costco (COST).
Earnings Outlook Could Spark QBIG
Expectations for the Magnificent Seven to deliver EPS growth in excess of the broader market add to QBIG’s allure. That’s saying something, because S&P 500 EPS growth in 2025 is expected to be solid.
“It is interesting to note that analysts believe earnings growth for companies outside the ‘Magnificent 7’ will improve significantly in 2025,” said FactSet’s John Butters. “While analysts expect the ‘Magnificent 7’ companies to report earnings growth of 21% in 2025, they expect the other 493 companies to report earnings growth of 13% for 2025. This 13% earnings growth for CY 2025 reflects a substantial improvement to analyst expectations of just over 4% earnings growth for these same companies for CY 2024.”
Butters added that all 11 of the sectors represented in the S&P 500 are expected to notch EPS increases next year, with six forecast to do so in double-digit fashion. Three of those are technology, communication services and consumer discretionary — a trio that makes up about half of the QBIG roster. Tech and communication services are two of the four sectors forecast to deliver revenue growth in excess of the S&P 500. Rising profit margins in 2025 could also help the ETF.
“The estimated net profit margin (based on aggregate estimates for revenues and earnings) for the S&P 500 for 2025 is 13.0%, which is above the 10-year average (annual) net profit margin of 10.8%. If 13.0% is the actual net profit margin for the year, it will mark the highest annual net profit margin reported by the index since FactSet began tracking this metric in 2008. The current record is 12.6%, which occurred in CY 2021,” noted Butters.
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