First Quarter Earnings Drove Sector ETFs

I’m a former stock analyst responsible for publishing on communications services and information technology stocks. While I don’t miss covering multiple earnings calls in a day, I appreciate how these quarterly updates impact the returns of equity ETFs. 

First-quarter calendar 2024 earnings season ended up better than expected. S&P 500 companies generated 5.7% year-over-year earnings growth, as of May 17, according to FactSet. This helped the broad market index ETFs to climb higher and gain in popularity. 

Breaking Down Sector Earnings 

“Driving that strength were communications services, consumer discretionary, information technology and utilities,” explained Christine Short, head of research at Wall Street Horizon, a TMX Company. Mega-cap growth stocks delivered in the first quarter after a strong 2023. 

Within the communications services sector, Alphabet and Meta carried the growth, while Amazon and Microsoft did so in consumer discretionary and information technology sectors. Short noted that Nvidia had not reported quarterly results but was expected to demonstrate strength. Utilities was the one sector that was not driven by one or two mega-caps according to Wall Street Horizon. 

Looking to the second calendar quarter, Short noted that the S&P 500 communications services and information technology sectors are expected to maintain leading positions. Meanwhile, due to difficult comparisons, Amazon’s earnings growth is expected to slow down. With consumer spending cooling, Short does not expect other consumer discretionary companies to provide enough help to offset. 

Where Has the ETF Money Gone? 

According to State Street Global Advisors analysis, information technology ETFs gathered $8.6 billion of net inflows in the three months ended April. Consumer discretionary and industrials were the only two other sectors to exceed $1 billion of new money in that period. The communications services ETFs collectively had $227 million of net inflows. Meanwhile, consumer staples, healthcare and utilities sector funds had sizable net outflows.

In April, consumer discretionary ETFs incurred redemptions, while information technology along with energy and financials were in favor.  

What’s Inside Popular Sector ETFs 

Before we talk further about communications services and information technology ETFs, a reminder that a sector classification matters a lot. People routinely call the above companies tech stocks. However, this is not true. S&P Dow Jones Indices and MSCI consider Alphabet and Meta communications services companies and Microsoft and Nviaia information technology companies. These index providers classifications count when looking inside many sector ETFs. 

The Technology Select Sector SPDR ETF (XLK) pulled in $1.3 billion in the period between February and April. The $66 billion fund recently had a 23% stake in Microsoft. Nvidia was the fourth largest position, with 4.6% in assets. Apple (21%) and Broadcom (4.8%) were the second and third biggest stakes. There are 67 stocks in the ETF, all members of the large-cap S&P 500 Index. 

The Vanguard Communications Services ETF (VOX) gathered approximately $100 million in the three months ended April. The $4.1 billion fund invests in more than 100 large-, mid- and small-cap communications services companies inside an MSCI index. Meta Platforms comprised 20% of VOX assets, while the two share classes of Alphabet represented 25%. Comcast, Walt Disney, and Verizon Communications were other top-10 holdings. 

Many stock analysts are recovering from a busy earnings season. Meanwhile, I’m interested to see if XLK and VOX continue to garner favor with investors positioning ahead of the June quarterly results season.  

 For more news, information, and analysis, visit VettaFi | ETF Trends.


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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