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ETF in Focus as S&P 500 Earnings Improves Beyond AI
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The S&P 500 has jumped about 17% so far this year, mainly dominated by a handful of stocks known as the "Magnificent Seven" that are tied to big tech and AI technologies. NVIDIA (NVDA - Free Report) alone has made up over a third of the index's gains in 2024.
However, the remaining 493 stocks in the S&P 500 have met with earnings pressure since early 2023. These stocks have been in an earnings recession, with no year-over-year growth in earnings since Q4 2022, according to a Yahoo Finance article.
Prospects for Earnings Recovery Brighten
Analysts from Bank of America predict an end to this earnings recession for the majority of S&P 500 companies starting with Q2 2024, as quoted on Yahoo Finance. Earnings growth forecasts suggest improvements of 6%, 7%, and 13% annually in the second, third and fourth quarters, respectively, although this growth is expected to lag the AI-driven sectors.
Per the Earnings Trend issued on July 3, Q2 earnings for the Magnificent Seven companies are expected to be up 25.5% year over year on 13.2% higher revenues. Barring the Magnificent Seven, Q2 earnings growth for the rest of the S&P 500 Index will decline to 5% from 8.6%.
Still, earnings growth for the Energy sector is on track to turn positive in Q2 after remaining in negative territory over the previous four quarters. Medical (+19.0%), Energy (+10.9%), Consumer Discretionary (+12.5%) and Finance (+9.0%) as the notable non-tech sectors that have gained momentum.
Recovery Offers Hope for Earnings ETFs
There is growing concern on Wall Street about the wide divergence between AI-focused stocks and others within the S&P 500. Some analysts argue that the S&P 500 Index may not continue the winning momentum if the AI rally stalls. In such a scenario, the improvement in earnings in non-AI stocks of the S&P 500 may act as a tailwind to earnings ETFs like WisdomTree U.S. LargeCap ETF (EPS - Free Report) (read: 5 ETFs to Play the Burgeoning Corporate Buybacks).
EPS ETF in Focus
The underlying WisdomTree U.S. LargeCap Index is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market. The fund charges 8 bps in fees and yields 1.53% annually.
Holding 500 stocks in its basket, the fund is well spread out across each component, with each having less than 5.92% share. Additionally, WisdomTree U.S. LargeCap Index has exposure to a number of sectors, with information technology (26.99%), financials (16.65%), communication services (13.47%) and healthcare (10.10%) taking double-digit exposure each. EPS has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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ETF in Focus as S&P 500 Earnings Improves Beyond AI
The S&P 500 has jumped about 17% so far this year, mainly dominated by a handful of stocks known as the "Magnificent Seven" that are tied to big tech and AI technologies. NVIDIA (NVDA - Free Report) alone has made up over a third of the index's gains in 2024.
However, the remaining 493 stocks in the S&P 500 have met with earnings pressure since early 2023. These stocks have been in an earnings recession, with no year-over-year growth in earnings since Q4 2022, according to a Yahoo Finance article.
Prospects for Earnings Recovery Brighten
Analysts from Bank of America predict an end to this earnings recession for the majority of S&P 500 companies starting with Q2 2024, as quoted on Yahoo Finance. Earnings growth forecasts suggest improvements of 6%, 7%, and 13% annually in the second, third and fourth quarters, respectively, although this growth is expected to lag the AI-driven sectors.
Per the Earnings Trend issued on July 3, Q2 earnings for the Magnificent Seven companies are expected to be up 25.5% year over year on 13.2% higher revenues. Barring the Magnificent Seven, Q2 earnings growth for the rest of the S&P 500 Index will decline to 5% from 8.6%.
Still, earnings growth for the Energy sector is on track to turn positive in Q2 after remaining in negative territory over the previous four quarters. Medical (+19.0%), Energy (+10.9%), Consumer Discretionary (+12.5%) and Finance (+9.0%) as the notable non-tech sectors that have gained momentum.
Recovery Offers Hope for Earnings ETFs
There is growing concern on Wall Street about the wide divergence between AI-focused stocks and others within the S&P 500. Some analysts argue that the S&P 500 Index may not continue the winning momentum if the AI rally stalls. In such a scenario, the improvement in earnings in non-AI stocks of the S&P 500 may act as a tailwind to earnings ETFs like WisdomTree U.S. LargeCap ETF (EPS - Free Report) (read: 5 ETFs to Play the Burgeoning Corporate Buybacks).
EPS ETF in Focus
The underlying WisdomTree U.S. LargeCap Index is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market. The fund charges 8 bps in fees and yields 1.53% annually.
Holding 500 stocks in its basket, the fund is well spread out across each component, with each having less than 5.92% share. Additionally, WisdomTree U.S. LargeCap Index has exposure to a number of sectors, with information technology (26.99%), financials (16.65%), communication services (13.47%) and healthcare (10.10%) taking double-digit exposure each. EPS has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.