After a tariff-fueled stock market chaos, the focus has turned to the first-quarter earnings season, which kicked off with banking players reporting numbers. This time, investors will be less focused on what companies earned in the first quarter of 2025 but more on sizing up the earnings impact of the emerging tariff and macroeconomic backdrop.
This is because the rapidly fluctuating U.S. trade policy has clouded the outlook for the company’s earnings for the rest of the year. Most companies may be forced to withdraw or lower their earlier guidance, given the tariff-induced uncertainty. However, the recent stock market sell-offs have made the U.S. stocks cheapest in nearly 18 months, making them compelling ahead of earnings. The forward price-to-earnings ratio (P/E) for the S&P 500 fell to 18.01 on April 8. It was the lowest level since November 2023 and below its 10-year average of 18.63, according to Dow Jones Market Data (read: S&P 500's Worst 4-Day Drop: 5 Stocks in the ETF That Look Cheap).
According to the latest Earnings Trends report, total first-quarter earnings for the S&P 500 Index are expected to be up 5.8% year over year on 3.8% higher revenues. This will follow the 14.1% earnings growth on 5.7% revenue growth in the preceding period. First-quarter earnings estimates steadily came down from 10.4% at the start of January 2025.
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Of the 16 Zacks sectors, eight are expected to post significant earnings growth in the first quarter, with the strongest gains in the Medical sector (33.6%), followed by Utilities (15.0%), Technology (12.5%), Transportation (8.6%), Retail (2.3%), Business Services (1.8%), Finance (1.4%) and Aerospace (0.2%).
The Technology sector has been a significant growth driver in recent quarters, and the trend is expected to continue in the first quarter, with double-digit earnings growth in the seventh consecutive quarter. First-quarter earnings of the “Magnificent 7,” which now represents a large part of the S&P 500 Index, are expected to be up 12.7% from the same period last year on 11.5% higher revenues.
We have highlighted ETFs, each from the abovementioned sectors, that could make great plays as the earnings season unfolds.
Healthcare: Health Care Select Sector SPDR Fund (XLV)
Health Care Select Sector SPDR Fund is the most popular healthcare ETF with an AUM of $34.5 billion. It follows the Health Care Select Sector Index and holds 60 securities in its basket. Pharma takes the largest share at 29.3% from a sector look, while healthcare providers and services, healthcare equipment and supplies, and biotech round off the next spots with double-digit exposure each. Health Care Select Sector SPDR Fund charges 8 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 3 Sector ETFs & Stocks to Gain Amid Upbeat March Jobs Data).
Utilities: Utilities Select Sector SPDR (XLU)
With an AUM of $16.4 billion, Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. It follows the Utilities Select Sector Index, holding 31 stocks in its basket. Utilities Select Sector SPDR charges 8 bps of annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Technology: Vanguard Information Technology ETF (VGT)
Vanguard Information Technology ETF manages $67 billion in its asset base and provides exposure to 314 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Semiconductors, technology hardware storage & peripherals, systems software and application software are the top four sectors. Vanguard Information Technology ETF has an expense ratio of 0.09% (read: Semiconductors Leading Nasdaq's Bou nce-Back: ETFs in Focus).
Transport: iShares U.S. Transportation ETF (IYT)
iShares U.S. Transportation ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 45 securities. Rail transportation takes the largest share at 27.1%, while passenger ground transportation, air freight & logistics, passenger airlines and cargo ground transportation round off the next four spots with double-digit exposure each. iShares U.S. Transportation ETF has accumulated $519.2 million in its asset base and charges 39 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Retail: VanEck Vectors Retail ETF (RTH)
VanEck Vectors Retail ETF provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. VanEck Vectors Retail ETF has amassed $213.1 million in its asset base and charges 35 bps in annual fees. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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Health Care Select Sector SPDR ETF (XLV): ETF Research Reports iShares U.S. Transportation ETF (IYT): ETF Research Reports VanEck Retail ETF (RTH): ETF Research Reports Utilities Select Sector SPDR ETF (XLU): ETF Research Reports Vanguard Information Technology ETF (VGT): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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