5 Sector ETFs to Bet on Ahead of Q4 Earnings

The fourth-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. There has been a deceleration in the earnings outlook in recent months, with negative revisions for several key sectors since the start of the fourth quarter.

Total S&P 500 earnings are expected to be down 0.2% from the same period last year on 2.3% higher revenues, per the latest Earnings Trends. This would follow 3.8% earnings growth in the third quarter on 2% higher revenues. Estimates have steadily come down from 5.5% in early October, representing a bigger decline in earnings estimates compared to the comparable periods for the first three quarters of 2023. The negative revisions are more pronounced in 11 of the 16 Zacks sectors.

Of the 16 Zacks sectors, eight are expected to post earnings growth in the fourth quarter, with the strongest gains in the Technology sector (18.8%). This would be followed by retail (18.3%), Consumer Discretionary (14.8%%), Utilities (14.7%) and Finance (4.7%).

Per Factset, the S&P 500 is expected to post 1.3% earnings growth for the fourth quarter. If this growth is attained, then it would mark the second straight quarter of year-over-year earnings growth for the index.

Given this, we have highlighted one ETF from the abovementioned sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).

Technology: Technology Select Sector SPDR Fund (XLK)

Technology Select Sector SPDR Fund targets the broad technology sector and follows the Technology Select Sector Index. It holds about 64 securities in its basket, with a heavy concentration on the top two firms — Microsoft (MSFT) and Apple (AAPL). XLK has key holdings in software, semiconductors & semiconductor equipment, and technology hardware, storage & peripherals.

Technology Select Sector SPDR Fund is the most popular and heavily traded ETF, with AUM of $56.2 billion and an average daily volume of 7 million shares. The fund charges 10 bps in fees per year and has a Zacks ETF Rank #1.

Retail: SPDR S&P Retail ETF (XRT)

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds 76 well-diversified stocks in its basket, with none making up for more than 1.8% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in specialty retail, automotive retail, apparel retail and broadline retail.

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $418.1 million and an average trading volume of 7 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2 (read: 5 Top-Ranked ETF Winners of December With More Room for Gains).

Vanguard Consumer Discretionary ETF (VCR)

Vanguard Consumer Discretionary ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 311 stocks in its basket with concentrated exposure on the top two firms. In terms of industrial exposure, broadline retail, automobile manufacturers and restaurants occupy the top three spots (read: ETFs to Ride on Tesla's Record Q4 Delivery Numbers).

Vanguard Consumer Discretionary ETF is the low-cost choice in the space, charging investors only 10 bps in annual fees while volume is good at nearly 72,000 shares a day. The fund has managed $5 billion in its asset base so far. Vanguard Consumer Discretionary ETF has a Zacks ETF Rank #1.

Utilities: Vanguard Utilities ETF (VPU)

Vanguard Utilities ETF follows the MSCI US Investable Market Utilities 25/50 Index, holding 65 securities in its basket, with none accounting for more than 12% share. More than half of the portfolio is allocated to electric utilities, closely followed by multi utilities (26.1%).

Vanguard Utilities ETF charges 10 bps in annual fees and sees a good volume of around 228,000 shares on average. It has AUM of $5 billion and a Zacks ETF Rank #3.

Finance: Financial Select Sector SPDR Fund (XLF)

The ultra-popular Financial Select Sector SPDR Fund ETF seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It follows the Financial Select Sector Index, charging investors 10 bps in fees per year (read: 5 ETF Zones Scaling New Highs at the Start of 2024).

Financial Select Sector SPDR Fund has AUM of $34.4 billion and trades in an average daily volume of 37 million shares. It carries a Zacks ETF Rank #1.

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Financial Select Sector SPDR ETF (XLF): ETF Research Reports

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

SPDR S&P Retail ETF (XRT): ETF Research Reports

Vanguard Utilities ETF (VPU): ETF Research Reports

Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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