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Get Ready for Earnings Season With EPS

It’s the first full week of earnings reports as major banks continue to report their second quarter performance and economic outlook for the second half, having kicked off last week with mixed performances from Morgan Stanley and JPMorgan Chase. Major companies begin reporting this week and in a season of prolonged market volatility, earnings are being closely watched by all.

Goldman Sachs was first to release earnings Monday morning, beating expectations in both revenue and earnings, with markets responding positively, all while warning that inflation has become “deeply entrenched” in the U.S. economy, according to David Solomon, CEO of Goldman Sachs. Bank of America has also beat expectations for its quarterly revenue.

S&P 500 companies begin reporting this week too, and the expectation is that profits will have grown 4.2% in the second quarter of 2022 with a 10.2% growth in revenue over the same period according to FactSet data.

Image source: FactSet

“We expect the results to be generally okay,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, told CNBC. “I think focus will primarily be on margins and to the extent to which companies are able to pass along higher input costs, that’ll dictate where perhaps valuations can go.”

EPS Invests in Companies with Positive Earnings

With earnings season just kicking off, an easy way to capitalize on companies with cumulative positive earnings is through investment in the WisdomTree U.S. LargeCap Fund (EPS).

“While companies are likely to cite recessionary concerns during earnings, there will be areas of growth as some are able to benefit from higher commodity prices or pass along higher costs,” said Todd Rosenbluth, head of research at VettaFi.

EPS seeks to track the WisdomTree U.S. LargeCap Index, an index that is constructed of the 500 largest companies by market cap from the WisdomTree Total Market Index. This parent index is made up of companies that are listed, incorporated, and domiciled in the U.S. and have positive, cumulative earnings for the four most recent fiscal quarters closest to the annual screening date for the index.

The index is weighted by earnings based on the aggregate earnings of each company, with a max cap to sector representation of 25% (the real estate sector is capped at 15%). The weights may fluctuate depending on market performance and trends as well as volume factor adjustments and are reset annually at rebalance.

The fund utilizes representative sampling and invests at least 95% of assets in the component securities of the index under normal circumstances.

EPS carries an expense ratio of 0.08% and current top allocations include Apple at 6.24%, Alphabet at 4.81%, and Microsoft at 4.08%.

For more news, information, and strategy, visit the Modern Alpha Channel.

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