S&P 500 Earnings Growth Could Power This ETF | ETF Trends

Despite an array of headwinds, expectations are in place for another quarter of double-digit earnings growth for the S&P 500.

Of course, that stands to benefit a slew of exchange traded funds, including the Invesco S&P 500® Equal Weight ETF (RSP) and the Invesco ESG S&P 500 Equal Weight ETF (RSPE). As its name implies, RSP is the equal-weight answer to the cap-weighted S&P 500, and the Invesco ETF tracks the S&P 500 Equal Weight Index.

“Based on the average improvement in earnings growth during each earnings season due to companies reporting positive surprises, it is likely the index will report earnings growth of more than 10% for the first quarter, which would be the fifth consecutive quarter of (year-over-year) earnings growth above 10%,” notes FactSet’s John Butters.

Should that prediction prove accurate, it could be a relief to investors contending with a 5.77% year-to-date loss for the cap-weighted S&P 500. However, RSP is outperforming its cap-weighted rivals by nearly 220 basis points. Adding to the case for RSP is the penchant of S&P 500 member firms for outpacing earnings forecasts.

“Over the past five years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 8.9% on average. During this same period, 77% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 8.1 percentage points on average (over the past five years) due to the number and magnitude of positive earnings surprises,” adds Butters.

Additionally, there’s some recent history on the side of RSP because 20 S&P 500 components already delivered first-quarter earnings, and those companies, broadly speaking, are doing an admirable job of topping estimates.

“Of the 20 S&P 500 companies that have reported actual earnings for Q1 2022 to date, 70% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 20 companies have exceeded estimated earnings by 2.1%,” notes Butters.

Those surprises are below the five- and 10-averages, indicating that there’s some work to be done on the earnings front. However, if the companies reporting when earnings season truly ramps up beat Wall Street forecasts, RSP could offer upside potential.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.