5 Favorite Sectors Of Q3 Earnings And Their ETFs

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Third-quarter 2022 earnings are set to kick off this week, with the banking sector slated to report numbers. Total S&P 500 earnings are expected to be up 0.7% from the same period last year on 9.1% higher revenues. The earnings growth is down from 7.2% at the start of the third quarter.

In addition to inflation, logistical challenges, and macroeconomic uncertainty, which have been recurring themes in the last couple of quarterly reporting cycles, a strong U.S. dollar is also acting as a headwind this earnings season.

Of the 16 Zacks sectors, eight are expected to record positive earnings growth in the third quarter, with the strongest gains in energy (up 113.2%). This will be followed by transportation (48.1%), autos (31.6%), consumer discretionary (22.2%) and construction (24.5%) sectors.

Given this, we have highlighted one ETF from the five sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).


The energy sector has been benefiting from higher oil prices on tight supply conditions amid rising interest rates environment and recession fears. Energy Select Sector SPDR (XLE - Free Report) is the largest and the most popular ETF in the energy space, with AUM of $38 billion and an average daily volume of 25.7 million shares. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 22 securities in its basket, with a heavy concentration on the top two firms.

Energy Select Sector SPDR charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a High-risk outlook.


The transport sector has bounced back strongly, with more Americans returning to traveling. As such, the sector is expected to post strong results, and iShares U.S. Transportation ETF (IYT - Free Report) seems a good pick. It tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 49 securities. From a sector perspective, Air freight & logistics and railroads take the largest share at nearly 30% each, while trucking and airlines round off the next two spots with double-digit exposure each.

iShares U.S. Transportation ETF has accumulated $808.7 million in its asset base and sees a solid trading volume of around 215,000 shares a day. It charges 39 bps in annual fees.


Though the auto sector has been battling a shortage of components with supply problems, it is expected to post positive earnings growth. First Trust S-Network Future Vehicles & Technology ETF (CARZ - Free Report) offers pure-play global exposure to 101 auto stocks by tracking the S-Network Electric & Future Vehicle Ecosystem Index. It has a moderate concentration across components as each of these makes up for no more than 5% share.

First Trust S-Network Future Vehicles & Technology ETF has $43.1 million in AUM and trades in a small average daily trading volume of about 7,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with a High-risk outlook.

Consumer Discretionary

Americans are gaining optimism as consumer confidence rose for the second consecutive month in September, driven by lower gas prices and a strong job market. Rising consumer confidence bodes well for household spending in the coming months and is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending.

Vanguard Consumer Discretionary ETF (VCR - Free Report), which follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 311 stocks in its basket, looks like an exciting pick. In terms of industrial exposure, Internet & direct marketing retail, automobile manufacturers and restaurants occupy the top three spots.

Vanguard Consumer Discretionary ETF is the low-cost choice in the space, charging investors only 10 bps in annual fees while volume is good at nearly 80,000 shares a day. The fund has managed $4.4 billion in its asset base so far. Vanguard Consumer Discretionary ETF has a Zacks ETF Rank #1 with a Medium risk outlook.


The construction sector is witnessing some slowdown this year on higher mortgage rates and a rise in cost of raw material prices. Mortgage rates topped 6.5% for the first time since mid-2008. The increase in rates has made homeownership more expensive for first-time buyers, discouraging people from buying homes. Despite this, homebuilders are expected to report solid earnings.

iShares U.S. Home Construction ETF (ITB - Free Report) should emerge strongly when the companies come up with solid results. It provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.2 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks and charges 39 bps in annual fees.

iShares U.S. Home Construction ETF trades in a heavy volume of around 3 million shares a day on average and has a Zacks ETF Rank #3 with a High-risk outlook.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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