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Trade Optimism & Earnings Effect: 5 Hot ETF Charts

Sweta Killa

After a bumpy ride last year, U.S. bulls are roaring higher on hopes of optimism over a trade deal between the United States and China. With this, the bull market is turning 10 on Mar 9. Notably, the S&P 500 closed above 2,800 for the first time in nearly four months while the Dow Jones also broke 26,000 for the first time since Nov 9 in the week that went by (read: Top-Ranked ETF Winners in Dow's Longest Rally in 24 Years).

The Fed’s stance of being patient toward rising rates this year also boosted investors’ sentiment. Additionally, better-than-expected corporate earnings added to the strength. This is especially true as the Q4 earnings for 89% of the S&P 500 index market capitalization are up 12.7% on 7.2% revenue growth, with 67.4% beating EPS estimates and 61.8% surpassing top-line expectations, according to the latest Earnings Trends.

Though Q4 growth is decelerating and is below the pace set in the first three quarters of the year, both earnings and revenue growth rates are better than 10.7% and 5.2%, respectively, projected at the start of the Q4 earnings season.  

While these trends have led to rally in many corners of the equity ETF world, we have highlighted five ETFs that buoyed on the combination of trade optimism and decent earnings. In addition, we have given a chart for their performances since the start of the year and compared them with the broad market fund SPY and the broad sector.

SPDR S&P Oil & Gas Equipment & Services ETF XES

This fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. Trade deal talks have led to anticipation of higher demand for oil in the world’s second-largest economy. This coupled with OPEC-led fresh crude output cut and sanctions on Venezuela's oil exports pushed up oil price. Further, earnings have been upbeat for the oil and gas sector with 86.7% of the sector’s total market capitalization reported so far are up 100.3% on higher revenues of 12.5%. While many energy ETFs have performed exceptionally well, XES stole the show, gaining 28.4% so far this year. The fund has a Zacks ETF Rank of #4 (Sell) with a High risk outlook (read: Wall Street's Best Start Since 1987: Top ETFs of Top Sectors).

ProShares Online Retail ETF ONLN

This ETF is focused exclusively on retailers that principally sell online. Total earnings from 72% of the sector’s total market capitalization are up 23.6% on 8.3% higher revenues, with 66.7% of the companies beating on both top and bottom lines. Earnings growth is the fourth highest contributor to the S&P 500 index. Meanwhile, hopes of a trade deal boosted consumer confidence in the economy, leading to higher spending. As a result, ONLN has surged 26.7% (read: Consumer Discretionary ETFs Leading This Earnings Season).

SPDR FactSet Innovative Technology ETF XITK

This fund seeks to provide exposure to the most innovative companies with high revenue growth across the technology sector and other industries that deal with technology, such as electronic media. A slew of strong earnings results, hopes of a trade deal and beaten-down prices have rekindled investors’ interest in the sector. In particular, the technology sector has higher exposure to the Chinese economy. Though earnings growth is in the higher single-digit range, the technology sector came up with the second-highest earnings surprises in the Q4 earnings season, with 88.7% beating the estimates. XITK has gained 24.2%.

SPDR S&P Aerospace & Defense ETF XAR

This ETF offers equal-weight exposure to 32 stocks and has surged 22.1% on a combination of trade optimism and earnings. Notably, total earnings from 100% of the sector’s total market capitalization reported so far are up 19.7% on 9.3% higher revenues, with 90% of the companies beating on earnings and 70% exceeding top-line estimates. Earnings beat ratio is the highest when compared to the other sectors. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Why Aerospace & Defense ETFs are Soaring in 2019).

Principal Healthcare Innovators Index ETF BTEC

This fund offers access to early-phase companies developing treatments for conditions like migraines, Crohn’s disease, multiple sclerosis, diabetes, and other illnesses. Being the high growth sector, trade optimism has fueled a strong rally. Total earnings for 98% of the total healthcare market capitalization are up 11.2% on revenue growth of 8.1%, with 72.9% beating EPS and 75% beating revenue estimates. Notably, revenue beat ratio is encouraging compared to the other sectors. BTEC is up 20.4% so far this year and has a Zacks ETF Rank #1 (Strong Buy).

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