Top Sector ETFs Ahead Of Earnings Season

S&P 500 companies are expected to see the fastest earnings growth in nearly five years. Here's what that means for sector ETFs.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

It's that time of year again. Over the next two months, firms will begin announcing their quarterly earnings, providing the first glimpse of how corporations are doing in the President Trump era.

This is a chance for companies to give investors what they expect―strong profits that justify the stock market's 5.7% gain so far this year.

Failure to deliver could jeopardize the Trump rally. But if corporations do deliver, it could give the market much-needed support while investors wait for the president's business-friendly policies to be implemented later this year.

Strongest Profit Growth In Five Years

A deluge of earnings reports will be released starting the middle of this month. Ahead of that, analysts are optimistic that S&P 500 companies will see their strongest profit growth since 2011. According to FactSet, first-quarter earnings are projected to increase by 9.1% year-over-year, the largest gain since the 11.6% jump in Q4 2011.

The first quarter's growth rate is similar to what analysts expect for 2017 as a whole―an earnings increase of 9.8%. Presumably, analysts haven't accounted for any bump in earnings from Trump's policies, such as tax cuts and deregulation. The final shape those policies take is very much unknown; thus, there's no way to accurately model how big their impact on profits will be, and when that impact will take place.

As those policies get closer to fruition, it's likely analysts will start ratcheting up earnings for subsequent quarters to account for them. In the meantime, companies have a chance to unveil the fastest earnings growth in almost five years, even without the benefit of helpful fiscal policies.

Energy Earnings Surge 300%

A big reason for this year's earnings acceleration is the rebound in oil prices. During the first quarter of last year, crude oil dipped as low as $26/barrel. Today it's trading closer to $50. In turn, energy sector earnings are anticipated to rebound from a loss of $1.5 billion in last year's first quarter to a profit of $9.2 billion in this year's first quarter.

How significant is that? Strip out energy, and the Q1 growth rate for the S&P 500 would drop from 9.1% to 5.2%.

For 2017 as a whole, energy sector earnings are anticipated to surge 301.1%, by far the most of any sector. However, ironically, the energy sector, as measured by the Energy Select Sector SPDR Fund (XLE), is the worst-performing stock market sector this year, with a 6.8% loss in the year-to-date period through April 3. It's one of only two sectors that are down this year.

A lot of that has to do with the fact that energy stocks already spiked last year in anticipation of the earnings rebound (energy was the top-performing sector in 2016 even as earnings for the group plummeted).  

SectorQ1 GrowthFY 2017 Growth
S&P 5009.1%9.8%
Real Estate6.7%4.1%
Consumer Staples1.6%4.2%
Health Care0.5%4.2%
Consumer Disc.-1.8%5.6%


Market-Beating Growth

After energy, the sector expected to see the fastest profit growth in Q1 is financials, at 14.8%. That's followed by information technology, at 13.4% and materials, at 10.7%. Those groups and energy are the four sectors that are projected to show faster profit growth than the broader S&P 500 in their earnings reports.

But out of those, only the tech sector, as measured by the Technology Select Sector SPDR Fund (XLK), is beating the S&P 500 in terms of performance, with a 10.6% return year-to-date.

Market-Lagging Growth

With four sectors expected to grow earnings faster than the market, that leaves seven sectors expected to show slower growth. Those include real estate, utilities, consumer staples and health care (where earnings may grow in the low-single-digit range), and consumer discretionary, telecom and industrials (where earnings growth may actually turn negative).

Contact Sumit Roy at [email protected]


Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.