To this point in third-quarter earnings season, S&P 500 member firms have notched aggregate earnings per share growth of 4.1%, but analysts are projecting that figure will decline to 3.2% in the current quarter. However, that doesn’t imply earnings growth will turn negative in 2024. In fact, some experts believe EPS growth will rebound in the first quarter and that could provide support for exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
“For Q2 2024, analysts are projecting earnings growth of 10.5%. While these growth rates are below the expectations on September 30, they are still above the current growth rates for Q3 2023 and Q4 2023,” wrote FactSet’s John Butters in a recent report.
QQQ, QQQM Could Be Solid Earnings Growth Ideas
Experienced investors that earnings growth across sectors isn’t linear. Some groups, such as technology and communication services, post higher rates of EPS growth than, say, consumer staples and utilities. That’s simply how efficient markets function. However, specific to QQQ and QQQM, which have identical rosters, those ETFs could benefit from sector-level earnings trends.
“At the sector level for Q1 2024, nine of the eleven sectors are predicted to report year-over-year earnings growth. Led by the Communication Services (19.9%), Consumer Discretionary (16.5%), and Information Technology (15.2%) sectors,” added Butters. “At the company level for Q1 2024, NVIDIA ($3.91 vs. $1.09), Amazon.com ($0.66 vs. $0.31), Meta Platforms ($3.60 vs. $2.20), and Alphabet ($1.49 vs. $1.17) are expected to be the largest contributors to earnings growth for the S&P 500 for the quarter. If these four companies were excluded, the estimated earnings growth rate for the S&P 500 for Q1 2024 would fall to 3.2% from 6.7%.”
Tech stocks account for half of the QQQ and QQQM portfolios. Communication services and consumer cyclical names combine for almost 30% of the ETFs’ weights. Regarding the companies mentioned above by Butters, that quartet combines for about 21% of the ETFs’ lineups.
Beyond EPS Growth
Investors considering the Invesco ETFs could have more to look forward beyond first-quarter EPS growth. Butters forecasts more of the same with more breadth in the second quarter.
“At the sector level for Q2 2024, all eleven sectors are predicted to report year-over-year earnings growth. Led by the Health Care (23.5%), Energy (21.3%), Communication Services (16.6%), and Information Technology (11.1%) sectors. At the company level for Q2 2024, Merck ($2.06 vs. $-2.06), NVIDIA ($4.17 vs. $2.70), and Meta Platforms ($4.18 vs. $2.98) are expected to be the largest contributors to earnings growth for the S&P 500 for the quarter,” concluded the analyst. “If these three companies were excluded, the estimated earnings growth rate for the S&P 500 for Q2 2024 would fall to 7.0% from 10.5%.”
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