S&P 500 Earnings Surge Puts Energy, Tech ETFs in Focus

S&P 500 companies are turning in their strongest earnings season in five years. And a handful of sectors are doing most of the heavy lifting.

Key Takeaways:

• S&P 500 blended earnings growth hit 47.4%, the highest rate since Q2 2021.
• Energy earnings jumped 135.3% year over year, the top gain among all 11 sectors.
• Tech led revenue growth at 35.6%, while communication services earnings rose 109.8%.

Sixty-one percent of S&P 500 companies have reported second-quarter results so far. Of those, 86% have topped earnings estimates, according to FactSet. That beat rate is also above the five-year average of 78% and the 10-year average of 76%.

That kind of outperformance is pushing the index’s blended earnings growth rate to 47.4% year over year, according to FactSet. That is the highest rate since the second quarter of 2021. Still, the gains are not spread evenly. Energy, communication services and technology companies are posting some of the widest earnings gains of any sector this quarter, giving investors sector-specific ETFs to consider beyond a broad S&P 500 fund.

See more: Financial Sector ETF Hits Record High on Fintech Gains

In aggregate, S&P 500 companies are reporting earnings 31.4% above estimates, according to FactSet. That would, in fact, mark the highest surprise the index has posted since FactSet began tracking the metric in 2008. The previous record, 23.2%, was set in the second quarter of 2020.

Energy is out in front of all 11 sectors, with earnings growth of 135.3% year over year, according to FactSet. Revenue in the sector likewise climbed 31.7% over the same period. The Energy Select Sector SPDR Fund (XLE) targets that group of oil, gas,and, energy equipment companies directly.

Communication services ranks second among sectors, with earnings up 109.8% year over year, according to FactSet. Revenue in the sector grew 15.2% as well. The Communication Services Select Sector SPDR Fund (XLC) tracks the media, entertainment, and telecom companies driving that growth.

Tech Leads the Pack in Earnings and Revenue Growth

Information technology (IT) companies posted the largest revenue growth of any sector at 35.6% year over year, according to FactSet. Meanwhile, earnings for the sector grew 69.4% over the same period. The Technology Select Sector SPDR Fund (XLK) gives investors a pure-play option for tapping into that growth.

Revenue growth across the index reached 14.1% year over year, according to FactSet. That is its highest mark since the fourth quarter of 2021. Companies topping revenue estimates, meanwhile, made up 77% of the index, above both the five-year and 10-year averages.

Excluding Alphabet Inc. (GOOGL) and Amazon.com, Inc. (AMZN), the index’s blended earnings growth rate would fall to 28.8% from 47.4%, according to FactSet. Amazon’s results, for instance, included $53.4 billion in non-operating, pre-tax income tied largely to its investment in artificial intelligence (AI) company Anthropic. Alphabet’s per-share earnings of $9.11, meanwhile, far outpaced the $2.88 analysts had projected.

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