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What's in Store for Dow ETF Going Into Q2 Earnings

Sweta Killa
·6-min read

Despite the second wave of coronavirus infection, the Dow Jones Industrial Average Index is performing well to start the third quarter. Will this strength continue heading into a weak earnings season?

The second-quarter earnings season is expected to be the worst since the financial crisis. The coronavirus outbreak will likely take a stronger beating on earnings. Per the Earnings Trends, earnings growth is expected to be negative for 15 of the 16 Zacks sectors with double-digit declines. The four sectors that are expected to lose money in Q2 (year-over-year declines of 100% or more) are autos (226.1% earnings decline), transportation (151.2%), energy (139.4%), and consumer discretionary (109.1%) (read: Q2 Earnings Likely To Plunge: Invest in These Sector ETFs).

As such, SPDR Dow Jones Industrial Average ETF DIA, which tracks the Dow Jones Industrial Average Index, is in the spotlight.

DIA in Focus

This is one of the largest and most-popular ETFs in the large-cap space with AUM of $21.6 billion and average daily volume of 6 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 10.3% share. Information technology (27%), healthcare (14.5%), consumer discretionary (14.1%), industrials (13.6%) and financials (13%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk (read: Dow Jones ETFs to Soar Further After Best Quarter Since 1987?).   

Nearly one-fourth of the blue chip firms are expected to announce results this week and in the next. JPMorgan Chase JPM is expected to release earnings on Jul 14 while International Business Machines IBM, UnitedHealth Group UNH and Goldman GS are scheduled to report on Jul 15. Johnson & Johnson JNJ is slated to release quarterly results on Jul 16. Microsoft MSFT will report on Jul 22 while Intel INTC on Jul 23. American Express AXP is scheduled to report on Jul 24.

Let’s delve deeper into the first-quarter earnings picture that will likely aid the fund in the coming days.

Earnings Whispers

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. 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 and Earnings ESP of +15.08%, indicating a reasonable chance of beating estimates this quarter. The company saw negative earnings estimate revision of 14 cents over the past 7 days for the to-be-reported quarter. Analysts decreasing estimates right before earnings — with the most up-to-date information possible — is not a good indicator for the stock. It delivered average negative surprise of 7.48% in the last four quarters. The stock has an unimpressive VGM Score of F (read: Bank ETFs in Focus on Stress Test Results, Easing Regulation).

International Business Machines has a Zacks Rank #4 and an Earnings ESP of +3.93%. It saw no earnings estimate revision activity in the past 30 days for the to-be-reported quarter and came up with a beat in each of the last four quarters, the average being 2.23%. IBM has a VGM Score of B.

UnitedHealth Group has a Zacks Rank #2 and an Earnings ESP of +7.69%. The stock saw positive earnings estimate revision of 22 cents over the past 30 days for the soon-to-be-reported quarter and delivered average negative surprise of 3.29% over the last four quarters.  It has a VGM Score of B.

Goldman is a Zacks #3 Ranked player and has an Earnings ESP of +8.79%. The company witnessed positive earnings estimate revision of 7 cents over the past 7 days for the yet-to-be-reported quarter. Its earnings surprise track over the preceding four quarters has been robust, the average beat being 4.54%. The stock has a VGM Score of F.

Johnson & Johnson has a Zacks Rank #3 and an Earnings ESP of +2.64%, indicating higher probability of beating estimates this quarter. The stock delivered average trailing four-quarter positive surprise of 6.75% and witnessed negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. The stock has a favorable VGM Score of B.

Microsoft Corporation has a Zacks Rank #3 and an Earnings ESP of -4.30%. The stock saw no earnings estimate revision over the past 30 days for the soon-to-be-reported quarter and delivered average negative surprise of 12.06% over the last four quarters. It has a VGM Score of B (read: 5 Best-Performing Stocks in Ultra-Popular Tech ETF (XLK)).

Intel has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock witnessed no earnings estimate revision activity over the past 30 days for the to-be-reported quarter but delivered average trailing four-quarter positive surprise of 17.37%. It has a top VGM Score of A.

American Express has a Zacks Rank #3 and an Earnings ESP of -98.12%. It saw negative earnings estimate revision of a penny over the past 7 days for the to-be-reported quarter. The company has an average positive surprise of 5.03% in the trailing four quarters. The stock has a VGM Score of C.

Bottom Line

With most blue-chip companies’ earnings scheduled over the coming days, 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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JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Johnson Johnson (JNJ) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
American Express Company (AXP) : Free Stock Analysis Report
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
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