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Dow ETF Appears Strong Ahead of Q2 Earnings

Sweta Killa

U.S. stocks have been skyrocketing lately, scaling new record highs on the back of optimism over easy money policies and trade talks. The Fed Chair Jerome Powell signaled at an interest rate cut for the first time in a decade as early as this month, citing uncertainties about trade and the global economy.
 
In fact, the Dow Jones Industrial Average topped 27,000 for the first time in its history last week, a day after the S&P 500 breached its new milestone of 3,000. The 1,000-point upward move for Dow Jones was achieved in more than a year-and-a half as the benchmark hit 26,000 last January. This strong momentum is expected to continue in second-quarter 2019 earnings as well.

As such, its proxy version, SPDR Dow Jones Industrial Average ETF DIA, is under the spotlight (read: Dow Jones ETF Hits New 52-Week High).

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of $22 billion and average daily volume of 3.5 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 9% share. Industrials (19.9%), information technology (19.2%), financials (15.1%), healthcare (13.1%) and consumer discretionary (12.9%) are the top five sectors. DIA charges 17 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 4 Reasons That Led Dow Jones to 27,000: ETFs in Focus).   

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

Q2 Earnings Trends

The S&P 500 earnings are expected to decline 3.4% from the same period last year despite 3.9% higher revenues. This would follow a 0.2% dip in earnings on 4.5% higher revenues in the first quarter. With earnings growth in the first quarter modestly being in the negative territory, another earnings decline this reporting cycle will result in two consecutive quarters of earnings decrease for the S&P 500 Index.

Earnings growth is expected to be negative for 8 of the 16 Zacks sectors with technology, aerospace, basic materials, construction and conglomerates as double-digit decliners.

Nearly one-fourth of the blue chip firms is expected to announce results this week and the next. JPMorgan Chase JPM, Johnson & Johnson JNJ and Goldman GS are expected to release earnings performances on Jul 16. International Business Machines IBM is scheduled to report on Jul 17 while UnitedHealth Group UNH and Microsoft MSFT) are slated to release quarterly results on July 18. American Express AXP will post results on Jul 19 (read: Dow Breezes Past 27,000: 5 Stocks That Drove ETF).

Earnings Whispers

According to the proven Zacks methodology, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP raises the chances of an earnings beat while Zacks Rank #4 or 5 (Sell-rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JPMorgan has a Zacks Rank #3, which though increases the predictive power of ESP, its Earnings ESP of 0.00% makes surprise prediction difficult for the stock this earnings season. The company saw negative earnings estimate revisions of 6 cents over the past 90 days for the to-be-reported quarter but delivered average positive surprise of 2.96% in the last four quarters. The stock has an unimpressive VGM Score of F.

Johnson & Johnson has a Zacks Rank of 3 and an Earnings ESP of +3.10%. It delivered average trailing four-quarter positive surprise of 1.85% and has witnessed positive earnings estimate revision of a penny in the past three months for the to-be-reported quarter. The stock has a favorable VGM Score of A.

Goldman is a Zacks #3 Ranked player and has an Earnings ESP of -2.43%. The company has witnessed a positive earnings estimate revision of 41 cents over the past 90 days for the yet-to-be-reported quarter. Its earnings surprise track over the preceding four quarters has been robust, the average being 22.04%. The stock has a VGM Score of F.

UnitedHealth sports a Zacks Rank #1 and an Earnings ESP of -0.13%. Albeit the stock has seen no earnings estimate revision for the quarter to be reported over the past 90 days, it pulled off average positive surprise of 3.27% in the previous four quarters. The stock has a VGM Score of B (read: Sector ETFs & Stocks to Bet On This Earnings Season).

International Business Machines is a #3 Ranked player and has an Earnings ESP of 0.00%. The stock came up with a beat in the last four quarters, the average being 1.33%. It has seen a negative earnings estimate revision of 10 cents in the past 90 days for the to-be-reported quarter. The stock has a VGM Score of A.

Microsoft has a Zacks Rank #3 and an Earnings ESP of -1.65%. The stock has seen a positive earnings estimate revision of 3 cents over the past 90 days for the soon-to-be-reported quarter and also delivered average positive surprise of 9.82% over the last four quarters. It has a VGM Score of B.

American Express has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company came up with average positive surprise of 0.84% in the trailing four quarters. However, the company has witnessed a negative earnings estimate revision of 3 cents over the past three months for the to-be-reported quarter. The stock has a VGM Score of B.

Bottom Line

With most blue-chip companies’ earnings scheduled over the coming weeks and investors’ sentiment being mixed, 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.

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