Small caps outperformed in January, thanks to the historical trend of the “January Effect.” Expectations of easing inflation and gradual Fed rate hikes show the fruits of that trend this year. SPDR S&P 600 Small Cap ETF SLY (up 7.0% this year) SPDR S&P 500 ETF Trust SPY (up 4.2%), SPDR Dow Jones Industrial Average ETF Trust DIA (up 3.5%), and Invesco QQQ Trust (QQQ) (up 5.5%).
Americans are also regaining confidence in the U.S. economy, according to the University of Michigan Consumer Confidence Index, with consumer confidence rebounding in December and returning to consecutive declines in October and November. It has reached its highest level since April.
Investors must be interested in knowing that small caps are forming in the ongoing earnings season. The S&P 600 small-cap index is forecast to see a 13.5% decline in earnings while earnings increase 0.7%, according to Sachs Earnings Trends, published on 11 January 2023. This runs counter to the possibility that his S&P 500 index of large-cap stocks will increase earnings by 4% and reduce earnings by 7.6%.
Against this backdrop, here are some small-cap (S&P 600) sectors that are likely to post better earnings and earnings growth than others this quarter.
Sector ETFs to watch
Basic Materials – Invesco S&P SmallCap Materials ETF PSCM
S&P 600 Basic Materials Stocks Could Post Earnings Growth of 49.5%, Exceeding Earnings Growth of 14% in Q4 2022, According to Zacks Earnings Trends, Published Jan. 11, 2023 .
The 35-stock fund is dominated by chemicals (52.75%), followed by metals and mining (35.04%). The fund’s fee is 29 bps. The fund’s top holdings include ATI Inc (8.41%), Livent Corp (7.83%) and Balchem Corp (7.68%).
Oil & Energy – Invesco S&P Small Cap Energy ETF PSCE
S&P 600 oil and energy stocks could post 302.4% earnings growth in Q4 2022, outpacing earnings growth of 36.0%.
The 28-share fund is heavily in energy equipment and services (52.47%), followed by oil, gas and consumable fuels (47.49%). The fund’s fee is 29 bps. The fund’s top holdings include Helmerich & Payne (12.72%), SM Energy (9.69%) and Patterson-UTI Energy (8.99%). The fund has a Zack rank #2.
Financials – Invesco S&P Small Cap Financial ETF PSCF
Financial stocks in the S&P 600 are likely to post earnings growth of 7% in Q4 2022 against near-flat earnings growth.
The 160-stock fund is dominated by banks (39.54%), followed by REITs (27.9%). The fund’s fee is 29 bps. No stocks exceed 2.76%. The fund has a Zack rank #2.
Consumer Staples – Invesco S&P SmallCap Consumer Staples ETF PSCC
S&P 600 consumer staples stocks could see 3.1% earnings growth and 5% declines in earnings in the fourth quarter of 2022.
The 32-share fund is dominated by food (40%), followed by personal products (22.87%). The fund’s fee is 29 bps. Hostess Brands (6.47%), Simply Good Foods (6.41%) and elf Beauty (5.59%) make up the top three stocks in the fund.
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SPDR S&P 500 ETF (SPY): ETF Research Report
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Report
Invesco S&P Small Cap Energy ETF (PSCE): ETF Research Report
Invesco S&P Small Cap Consumer Staples ETF (PSCC): ETF Research Report
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Report
Invesco S&P SmallCap Financials ETF (PSCF): ETF Research Report
Invesco S&P Small Cap Materials ETF (PSCM): ETF Research Report
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