Per the Earnings Trends issued on May 18, 2022, of the 467 S&P 500 companies that have reported 2022 Q1 results, 78.4% beating has surpassed EPS estimates, 74.7% has exceeded revenue estimates and 62.7% has surpassed both estimates. The Q1 beat percentages are well within historical ranges. Moreover, total earnings are up +9.6% on +13.9% higher revenues.
Barring a 15.7% decline in Finance sector earnings, Q1 earnings for the rest of the index members that have reported would be up 18.0%. On the other hand, excluding a 264.2% increase in Energy sector earnings, Q1 earnings growth would fall to 3.0%.
The S&P 500 is expected to report 2.9% earnings growth in Q2 over 9.4% revenue growth. Below, we highlight the sectors that look most promising at the current level.
Consumer Discretionary
The sector’s earnings are up 26.9% in Q2 with a 17% uptick in revenues. The sector has been sizzling with a still-decent demand profile. Retail sales in the United States increased 0.9% sequentially in April of 2022, after an upwardly revised 1.4% surge in March and matching market forecasts. The reading showed that American consumers continued to spend despite red-hot inflation.
Consumer spending makes up about 70% of U.S. economic activity. Thus, any gain in it will likely brighten the economic growth picture. Year on year, retail sales increased 8.2%. Consumer Discretionary Select Sector SPDR ETF XLY has a Zacks Rank #2 (Buy).
Construction
The sector’s earnings are up 15.2% in Q2 with a 15.9% uptick in revenues. The space is expected to remain strong due to growing demand for industrialization. The passage of the much-awaited $1.2-trillion infrastructure bill is pointing toward more demand for the sector. Invesco Dynamic Building & Construction ETF PKB has a Zacks Rank #3 (Hold).
Basic Materials
The sector’s earnings are up 15% in Q2 with a 17.6% uptick in revenues. The sector is yet another beneficiary of the infrastructure bill. As there is a promise in sectors like construction and industrials, there is high demand for materials. iShares U.S. Basic Materials ETF IYM has a Zacks Rank #3.
Autos
The sector’s earnings are up 26.7% in Q2 with a 25.8% uptick in revenues. New light-vehicle sales in the United States increased to 14.3 million units on a seasonally adjusted basis in April 2022 from the previous month’s sales of 13.3 million units. However, April 2022 sales were down 21.9% compared to the stellar sales pace seen in April 2021 due to a decline in inventory. Demand has been strong but availability issues are the limiting factor in sales data. First Trust SNetwork Future Vehicles & Technology ETF CARZ has a Zacks Rank #3.
Energy
The sector’s earnings are up 172.5% in Q2 with a 37.4% uptick in revenues. The energy sector has everything that is needed right now — decent valuation, higher dividends and an upbeat operating backdrop. WTI crude ETF United States Oil Fund LP (USO) is up more than 50% this year. The oil and gas rally this year has been driven by the Russia-Ukraine war (Russia is energy-rich) and rising pent-up demand as global COVID cases are ebbing. Investors can thus play Zacks Rank #2 (Buy) ETF Energy Select Sector SPDR ETF XLE.
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Energy Select Sector SPDR ETF (XLE): ETF Research Reports
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
First Trust SNetwork Future Vehicles & Technology ETF (CARZ): ETF Research Reports
iShares U.S. Basic Materials ETF (IYM): 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.
