With less than two weeks left in September, the third quarter is near its end. That means another earnings season is right around the corner. Corporate earnings updates remain important, but it seems that’s increasingly the case.
Following some artificial intelligence (AI)-fueled hype to start the year, analysts and investors are placing a greater emphasis on earnings. That could open the door to opportunity with the WisdomTree U.S. LargeCap Fund (EPS). The fund’s methodology is straightforward and underscores why it could be relevant for options here and now.
EPS is an earnings-weighted alternative to traditional large-cap equity benchmarks and funds that weigh components by market capitalization. Said another way, strong earnings growers — not necessarily the biggest companies — command larger weights in the EPS portfolio.
It Could Be the EPS Era
With the U.S. economy solid, interest rate cuts on the way and a recession unlikely, EPS could be the beneficiary of some macroeconomic tailwinds.
“U.S. companies, in general, are benefiting from solid U.S. economic growth. In 2024’s second quarter, the economy, as measured by Gross Domestic Product (GDP), expanded at an annualized rate of 2.8%, outpacing 2023’s 2.5% growth rate,” according to U.S. Bank. “Well-positioned U.S. companies capitalized on that trend, generating higher revenue and profits.”
Potentially adding to the allure of EPS today is the following. Rob Haworth, senior investment strategy director for U.S. Bank Wealth Management, noted that S&P 500 earnings per share are expected to reach $240 this year. That’s a 10% jump from 2023. Add to that, analysts aren’t lowering S&P 500 earnings forecasts for this year or 2025.
Sectors Driving Earnings Growth
Another concept for investors to monitor is which sectors are driving earnings growth for the broader market. Over the past several years, much of the S&P 500’s earnings growth was attributable to the technology sector. But more recently, financial services has joined the earnings growth party. That’s pertinent to investors evaluating EPS because those two groups account for more than 42% of the ETF’s portfolio.
“Technology and growth-oriented consumer discretionary stocks are where we want to invest today,” said Eric Freedman, chief investment officer for U.S. Bank Wealth Management. “Most business capital expenditure spending is concentrated there, as companies look to become bigger, faster and stronger through tech spending.”
Consumer cyclical stocks account for almost 9% of the EPS roster.
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