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What's in Store for Dow ETF in Q1 Earnings?

Sweta Killa
Smart Beta ETF report for DFJ

U.S. stocks registered the best quarter in nearly a decade with the Dow Jones Industrial Average climbing more than 11%. The solid momentum continued in the first week of April but seems to have been fading lately given fresh trade tensions between the United States and European Union as well as expectations of the first earnings decline since the second quarter of 2016 (read: Is a US-EU Trade War Brewing? Stocks & ETFs in a Soft Spot).

Given this, its proxy version, SPDR Dow Jones Industrial Average ETF DIA, is in the spotlight heading into the earnings season.

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of $21.3 billion and average daily volume of 5 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 10% share. Industrials (22%), information technology (18.9%), financials (14.3%), healthcare (13.2%) and consumer discretionary (12.3%) 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 to Bet on Dow Jones ETFs in Q2).   

Let’s delve into the Q1 earnings picture that will likely set up the movement of the fund in the coming days.

Q1 Earnings Trends

S&P 500 earnings are expected to decline 4% from the same period last year despite 4.6% higher revenues and net margins are also likely to witness 100 basis points compression, per Earnings Trends report. Earnings growth is expected to be negative for 10 of the 16 Zacks sectors, with technology and energy being the biggest drags.

Nearly one-fourth of the blue chip firms are expected to announce their results this week and in the next. JPMorgan Chase JPM is expected to release its results on Apr 12 (read: Beat Q1 Earnings Woes With These Sector ETFs & Stocks).

Goldman GS is slated to release its quarterly results on Apr 15 while UnitedHealth Group UNH, Johnson & Johnson JNJ, and International Business Machines IBM are scheduled to report on Apr 16. American Express AXP will report on Apr 18.

Earnings Whisper

According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases the chances of predicting 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 #4 and an Earnings ESP of -0.43%. The company saw negative earnings estimate revisions of 15 cents over the past 90 days for the to-be-reported quarter but delivered average positive earnings surprise of 0.39% in the last four quarters. The stock has a VGM Score of F.

Goldman has a Zacks Rank #4 and an Earnings ESP of 0.00%. The company has witnessed negative earnings estimate revision of 80 cents over the past 90 days for the yet-to-be-reported quarter. However, the earnings surprise track over the past four quarters is robust with an average positive surprise of 22.57%. It has a VGM Score of C (read: Invest Like Warren Buffett With These Bank ETFs).

UnitedHealth has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock has seen positive earnings estimate revision of 10 cents for the yet-to-be-reported quarter over the past 90 days and delivered a positive earnings surprise of 3.39% in the last four quarters. The stock has a top VGM Score of A.

Johnson & Johnson has a Zacks Rank #2 and an Earnings ESP of -2.52%. It delivered a positive earnings surprise of 1.61% in the last four quarters. However the company has witnessed negative earnings estimate revision of 12 cents in the past three months for the to-be-reported quarter. The stock has a VGM Score of B.

International Business Machines has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock delivered a positive earnings surprise in the last four quarters, with the average being 1.39%. It has seen earnings estimate revision of a penny in the past 90 days for the to-be-reported quarter. The stock has a VGM Score of B.

American Express has a Zacks Rank #3 and an Earnings ESP of -0.27%. The company delivered average positive earnings surprise of 2.90% in the past four quarters. However, the company has witnessed negative earnings estimate revision of a penny over the past three months for the to-be-reported quarter. The stock has a VGM Score of D.

Bottom Line

With earnings of most blue-chip companies scheduled over the coming weeks and mixed investors’ sentiment, investors should closely monitor the movement of the Dow ETF and grab any opportunity that arises from a surge in any of the 30 stocks.

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