Will These Small-Cap Sector ETFs Sizzle on Earnings Strength?
Zacks Investment Research | Feb 04, 2021 08:00PM ET
Small-cap stocks have been outperforming their bigger peers since late last year. Russell 2000 ETF Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose ).
Since the dual tailwinds worked wonders for pint-sized stocks, investors must be interested in knowing how the earnings picture is evolving for the segment. That would give investors a clear idea in assessing the future rally in an otherwise still-undervalued small-cap segment.
h3 Q4 Performance: S&P 600 Versus 500/h3Fourth-quarter earnings for the S&P 500 are expected to be up 0.4% year over year on 2.0% higher revenues. This increment will follow a 7.0% drop-off in Q3, a 32.2% decline in Q2 and a 12.8% slide in Q1.
Looking at Q4 as a whole for the small-cap index, total earnings are expected to be down 10.9% from the same period last year on 2.4% lower revenues. The decline in earnings will follow a 5.5% drop in Q3, a 62.1% plunge in Q2 and a 68.1% decline in Q1, per the Earnings Trends issued on Feb 3, 2021.
No wonder, the earnings underperformance has been prevalent for small-cap stocks for a long time. Still, the rate of decline appears to better if we look at the beginning of 2020. Against this backdrop, below we highlight a few small-cap sector ETFs that are promising a better earnings and revenue growth rate in the ongoing reporting season.
h3 Construction — Invesco Dynamic Building & Construction ETF (Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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