Per the Earnings Trends issued on Jun 7, Q2 2023 earnings for the S&P 500 Index are expected to decline 8.8% from the same period last year on 0.6% lower revenues. Margin declines for the sixth successive quarter would be responsible for the earnings drop.
The current earnings outlook is bleak. Earnings estimates for Q2 have dropped since the quarter began, but the cuts are relatively smaller compared to previous comparable periods. Q2 earnings have declined to 8.8% from 7.2% at the start of the period.
On a positive note, four sectors — Construction, Tech, Transportation, and Industrial Products — have seen increased earnings estimates for Q2 since the quarter started. These sectors hold promise for the upcoming reporting season.
Sector ETFs in Focus
Construction – Invesco Dynamic Building & Construction ETF (PKB)
The sector is expected to record a 26.7% decline in earnings on a revenue decline of 2.2%. The construction sector has been improving gradually. Jobs growth gives cues to this. In May, employment in construction (+25,000) came in higher than the average monthly jobs growth (+17,000) in the past year. Jobs growth in heavy and civil engineering construction was 11,000 in May. Investors can keep a watch on the price movement of PKB (read: 4 Sector ETFs & Stocks to Bet on Superb May Jobs Data).
Technology – Technology Select Sector SPDR Fund (XLK)
The sector is expected to log a 4.9% drop in earnings on a 0.2% decline in revenues. The sector outlook remains solid given the global digital shift that has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication, blockchain and 5G technology should drive the sector higher (read: 5 Top-Ranked ETFs to Tap the Red-Hot Technology Sector).
Transportation – SPDR S&P Transportation ETF (XTN)
The sector is expected to exhibit a 5% decline in earnings on a 3.3% drop in revenues. Employment in transportation and warehousing rose by 24,000 in May. In May, employment also increased in couriers and messengers (+8,000) and air transportation (+3,000). Zacks Rank #2 (Buy) SPDR S&P Transportation ETF (XTN) can thus be considered for a play.
Industrials Products – Industrial Select Sector SPDR Fund (XLI)
The sector is expected to report 5.2% growth in earnings on a 5.2% increase in revenues. As the economy rebounds from the pandemic, the sector is poised to gain from heightened national infrastructure investments. In November 2021, a $1.2 trillion infrastructure bill was passed by lawmakers, indicating a surge in sales for industrial firms involved in supplying construction equipment and services.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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