This earnings season is gearing up to be one that is closely watched by analysts and advisors as the first quarter of 2022 has been one of market volatility driven by risk concerns as well as inflation and rising rates.
Earnings season for Q1 2022 unofficially kicks off April 14 with JPMorgan reporting first of the financial sector and is set to go through May. Broad expectations are that of slowed but positive growth, with FactSet data projecting the S&P 500 to have earnings growth of 4.7%, the lowest since Q4 of 2020 (3.8%).
Image source: FactSet
“Earnings are expected to slow in 2022 following a robust recovery in 2021 from the negative impact from COVID in 2020,” said Todd Rosenbluth, head of research for ETF Trends and ETF Database. “In addition, high inflation provides headwinds for many sectors.”
Sectors to watch that is set to perform strongly include those related to commodities such as energy (estimated earnings growth of 245.4% year-over-year), and materials (estimated earnings growth of 30.5% year-over-year). The industrials sector has an estimated 31.9% year-over-year growth, even including the airline industry which is expected to post a negative.
Those sectors anticipated to decline include financials at a 24.2% loss year-over-year, consumer discretionary at a 14.9% decline year-over-year, and communication services at an estimated 5.9% year-over-year loss.
Investing in Earnings with EPS
With earnings season just around the corner, an easy way to capitalize on companies with cumulative positive earnings is through investment in the WisdomTree U.S. LargeCap Fund (EPS).
“Rather than making short-term stock-specific calls, EPS provides diversification benefits and a focus on intermediate-term growth,” said Rosenbluth.
EPS seeks to track the WisdomTree U.S. LargeCap Index, an index that is constructed of the 500 largest companies by market cap from the WisdomTree Total Market Index. This parent index is made up of companies that are listed, incorporated, and domiciled in the U.S. and have positive, cumulative earnings for the four most recent fiscal quarters closest to the annual screening date for the index.
The index is weighted by earnings based on the aggregate earnings of each company, with a max cap to sector representation of 25% (the real estate sector is capped at 15%). The weights may fluctuate depending on market performance and trends as well as volume factor adjustments and are reset annually at rebalance.
The fund utilizes representative sampling and invests at least 95% of assets in the component securities of the index under normal circumstances.
EPS carries an expense ratio of 0.08% and current top allocations include Apple at 5.98%, Microsoft at 5.06%, and Alphabet at 4.51%.
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