What Lies Ahead for Dow ETFs in Q3 Earnings?

After registering the worst month since October 2020, the Dow Jones Industrial Average staged a strong comeback to start the new month. This is especially true as the blue-chip index logged in its best week since June, gaining 1.2%.

The Senate voted to temporarily increase the debt ceiling, breaking a prolonged stalemate that rattled the markets in recent weeks. Easing concerns about the U.S. debt ceiling have supported the markets. Optimism over the earnings season, which will kick start this week, has also bolstered investors’ confidence (read: Ride Out the Volatile October Month With These ETFs).

Although Q3 earnings growth is expected to decelerate significantly from the first half’s breakneck pace, the earnings picture remains strong. Total S&P 500 earnings are expected to be up 26.1% from the same period last year on 14% higher revenues. The earnings projection reflects the same growth expected at the start of Q3 despite the rising cost pressures amid supply-chain disruptions and labor/material shortages. This would follow the 95.0% earnings growth on 25.3% higher revenues in Q2.

Of the 16 Zacks sectors, 14 are expected to earn more relative to the year-ago quarter as autos and utilities are expected to report a decline in earnings.

Given the strong earnings trend, SPDR Dow Jones Industrial Average ETF Trust DIA, which tracks the Dow Jones Industrial Average Index, is in the spotlight.

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of $29 billion and an average daily volume of 3.9 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components with each holding less than 7.8% share. Information technology (22.6%), financials (16.9%), healthcare (16.2%), industrials (15.5%), and consumer discretionary (14%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk.   

Nearly one-fourth of the blue-chip firms are expected to announce results this week and in the next. Goldman GS and JPMorgan Chase JPM are expected to report on Oct 13 while UnitedHealth UNH will announce earnings on Oct 14. International Business Machines IBM is scheduled to report on Oct 18 while Johnson & Johnson JNJ is expected to release earnings on Oct 19. Intel INTC and Dow Inc. DOW will release earnings on Oct 21.

Let’s delve deeper into the second-quarter earnings picture that will likely aid the fund in the coming days.

Earnings Whispers

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Goldman has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company witnessed positive earnings estimate revision of 31 cents over the past seven days for the yet-to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. Goldman’s earnings surprise track over the preceding four quarters has also been robust, the average beat being 72%. The stock has a VGM Score of A.

JPMorgan has a Zacks Rank #3 and Earnings ESP of +0.60%. The company saw positive earnings estimate revision of 3 cents over the past seven days for the to-be-reported quarter. It delivered an average surprise of 33.27% in the last four quarters. The stock has a VGM Score of B (read: How Will Bank ETFs Fare This Earnings Season?).

UnitedHealth has a Zacks Rank #2 and an Earnings ESP of +1.95%. The stock witnessed positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 12.49%, on average, over the last four quarters. It has a VGM Score of B.

International Business Machines has a Zacks Rank #4 and an Earnings ESP of +1.73%. It saw negative earnings estimate revision of a penny in the past 30 days for the to-be-reported quarter. The company came up with a beat in each of the last four quarters, the average being 6.76%. It has a VGM Score of B.

Johnson & Johnson has a Zacks Rank #4 and an Earnings ESP of +6.20%. The company witnessed negative earnings estimate revision of a penny over the past seven days for the yet-to-be-reported quarter. It’s earnings surprise track over the preceding four quarters has also been robust, with the average beat being 8.55%. The stock has a VGM Score of B.

Intel has a Zacks Rank #4 and an Earnings ESP of -0.62%. The stock witnessed no earnings estimate revision over the past 30 days for the soon-to-be-reported quarter and delivered an earnings surprise of 20.18%, on average, over the last four quarters. It has a VGM Score of A (read: Semiconductor ETFs Soaring to New Heights).

Dow has a Zacks Rank #2 and an Earnings ESP of 0.00%. It saw negative earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. The company came up with a beat in each of the last four quarters, the average being 25.56%. It has a VGM Score of A.

Bottom Line

With some of the blue-chip companies expected to report an earnings surprise, investors should closely monitor the movement of the Dow ETF and grab an opportunity that arises from a surge in any of the 30 stocks.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
Dow Inc. (DOW) : Free Stock Analysis Report
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research