Sector ETFs to Win on Q2 Earnings Growth Potential

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Sector ETFs to Win on Q2 Earnings Growth Potential

The Q2 earnings season has gathered pace this week, with nearly 70 companies, including 29 S&P 500 members, set to report. The spotlight was on major banks, alongside bellwethers such as Netflix, Johnson & Johnson, UnitedHealth Group and United Airlines.

Earnings Outlook Remains Strong

S&P 500 earnings estimates continue to trend higher, supported by broadening sector strength. While Technology-led earnings upgrades over the past year, Energy and Basic Materials have recently joined the rally, aided by the Persian Gulf-driven surge in commodity prices. Utilities and Finance have also seen improving earnings expectations.

Overall, S&P 500 companies are expected to post 23.8% year-over-year earnings growth on 11.3% higher revenues in Q2 2026, per the Earnings Trends. Earnings estimates have risen by nearly seven percentage points over the past three months, reflecting solid underlying business momentum despite elevated market expectations.

Early Earnings Scorecard

The reporting season has already begun, with 18 S&P 500 companies having released results through July 10. So far, earnings have surged 143.3% year over year on 24.3% revenue growth. About 88.9% of companies have beaten EPS estimates, while 77.8% have topped revenue expectations, pointing to a strong start to the Q2 reporting season.

What Lies Ahead of 2026 As a Whole?

All 16 Zacks Sectors are expected to have positive earnings growth in 2026. Seven sectors are expected to achieve double-digit earnings growth. These sectors are: Aerospace (+47.8%), Autos (+24.7%), Basic Materials (+48.1%), Industrial Products (+12.0%), Tech (+39.7%), Finance (+11.3%), and Oil/Energy (+63.6%), per Earnings Trends issued on July 8, 2026.

Winning Sector ETFs in Focus

Information Technology – Roundhill Magnificent Seven ETF MAGS

The information technology sector currently revolves around the AI boom, which is driven mainly by the “Magnificent Seven” stocks. Q2 earnings for the Magnificent 7 group of companies are expected to be up 28.5% from the same period last year, on 24.4% higher revenues. Total Tech sector earnings are expected to grow 48.5% in Q2 on 28% higher revenues, which follow earnings growth of 54.8% on 27% higher revenues in the preceding quarter (2026 Q1).

Energy – State Street Energy Select Sector SPDR ETF XLE

A significant portion of the earnings upgrade momentum of the S&P 500 has come from the Energy sector this time around. The Middle East crisis has made the sector a rising star. The Energy sector is expected to post 125.9% earnings growth in Q2 2026 on 18% higher revenues.

Basic Materials – State Street Materials Select Sector SPDR ETF XLB

The Basic Materials sector is expected to post 44.6% earnings growth in Q2 2026 on 14.2% higher revenues. Basic materials stocks have been surging in 2026 due to a combination of higher commodity prices, strong infrastructure demand, AI-related investment and geopolitical disruptions. In Q1, the sector reported earnings growth of 41% on 15.8% higher revenues.

Utilities – State Street Utilities Select Sector SPDR ETF XLU

For the second quarter of 2026, the sector is likely to log 13.9% earnings growth over 7.1% revenue expansion. In Q1, the sector recorded 15.3% earnings growth on 11.8% uptick in revenues.

As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services (read: Too Much Tech in Your Portfolio? ETFs to Help You Diversify).

Finance – State Street SPDR S&P Bank ETF KBE

The sector is expected to post 12.7% earnings growth in Q2 2026 on 8.3% higher revenues, which follows earnings growth of 25.6% on 9.8% higher revenues in the preceding quarter (2026 Q1). Strong loan growth, resilient trading activity and stable investment banking trends should support results.

Aerospace – iShares U.S. Aerospace & Defense ETF ITA

The aerospace sector is expected to post 11.1% earnings growth in Q2 2026 on 6.4% higher revenues, which follows earnings growth of 11.7% on 10.7% higher revenues in the preceding quarter (2026 Q1). The aerospace sector has been a clear winner from the ongoing geopolitical crisis and the demand for aerospace- and defense-related equipment and services.


 

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State Street Energy Select Sector SPDR ETF (XLE): ETF Research Reports
 
State Street Materials Select Sector SPDR ETF (XLB): ETF Research Reports
 
State Street SPDR S&P Bank ETF (KBE): ETF Research Reports
 
State Street Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research