FTEC: Eyes On Mag 7 Earnings, Momentum Is Back

seekingalpha10-23

Earnings growth among the Magnificent 7 companies is driving the S&P 500's EPS growth, with broader earnings increases expected through Q4 2025.I maintain a hold rating on FTEC due to strong momentum ...

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Matteo Colombo I came across a remarkable FactSet chart. It illustrates that earnings growth among the Magnificent 7 companies is essentially all of the S&P 500’s EPS rate of advance for the quarter just ended. We’ll see how it ultimately pans out, with mega-cap Information Technology firms reporting Q3 results later this month and into November.  As it stands, the I.T. chunk of the SPX trades near 30x earnings, which makes sense given that’s where the growth is. But we are likely to see a broadening out of the earnings-increase story in the quarters to come. The same FactSet note points out that the “Other 493” companies and sectors are set to produce EPS growth between 12% and 16% per quarter from the current period through Q4 2025. I reiterate a hold rating on the Fidelity MSCI Information Technology Index ETF (NYSEARCA:FTEC). I pointed out back in the second quarter that upside momentum was very strong and that a technical move to $190 may have been in the cards, but I was also concerned about the valuation and an impending rally among value and cyclical stocks.  We saw that play out, but FTEC holders have enjoyed a big rally since early August, and the ETF is now among the leading areas of the S&P 500 since mid-September. I reiterate a hold rating today. S&P 500 Q3 Earnings Growth: All About the Mag 7   FactSet S&P 500 Earnings Growth Set to Broaden Through YE 2025   FactSet According to the issuer, FTEC seeks to track the investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Information Technology 25/50 Index. The index is comprised of companies operating across information technology sectors. FTEC invests in growth and value stocks of companies across diversified market capitalization. FTEC is a large ETF and has attracted new money in the last handful of months since I last reviewed the product. Assets under management are now $12.5 billion, up from $10 billion in Q2. With a low 0.08% annual expense ratio and a modest 0.62% annual dividend, it’s an ideal holding for long-term investors even in taxable accounts with the low distribution rate. Share-price momentum has indeed been stellar since the spring – the ETF Grade per Seeking Alpha’s quantitative scoring system is an A+. FTEC also sports solid liquidity metrics, while its Risk rating is more mixed. The fund can feature elevated volatility at times, and the top three stocks account for nearly half of the fund. Average daily volume is north of 300,000 shares with a median 30-day bid/ask spread of three basis points, per Fidelity. For a refresher on the portfolio, the 5-star, Silver-rated ETF by Morningstar has actually moved more toward the large-cap blend section of the style box in recent months. Of course, there remains a significant allocation to large-cap growth, while domestic SMID caps are a relatively small share of the fund.  What is about unchanged from the end of the first half of the year is FTEC’s price-to-earnings multiple, which remains just shy of the 29 handle. With long-term EPS growth of 13.7%, the resulting PEG ratio is no bargain at 2.1x. FTEC: Portfolio & Factor Profiles   Morningstar The big three stocks have moved around somewhat since June, but Apple (AAPL), NVIDIA (NVDA), and Microsoft (MSFT) still command a more than 40% chunk of the ETF.  In all, the top 10 holdings comprise 59% of FTEC, which is down a few percentage points from my last look. With earnings season heating up, it will be key to pay attention to both the fundamentals and technicals of AAPL, NVDA, and MSFT. FTEC: Holdings & Dividend Information   Seeking Alpha Mag 7 Companies Earnings Dates   Wall Street Horizon Seasonally, we are in the heart of a bullish stretch for big-cap US tech. October and November have been strong months when scanning return data over the past 10 years. December has seen mixed results, but then modest returns have generally been had in Q1 of the new year. FTEC: Bullish October-November Trends   Seeking Alpha The Technical Take Amid heightened volatility ahead of the uncertain election outcome, FTEC has performed well. Notice in the chart below that the fund is back to testing its July peak just above the $180 mark. The $190 target I outlined in the second quarter remains in play, and with a rising long-term 200-day moving average, the bulls appear in control of the primary trend. That assertion is backed up by a rising uptrend support line going back to early 2023 and considering that price is above both the 200dma and the shorter-term 50-day moving average. But take a look at the RSI momentum gauge at the top of the graph – so far, it is printing a lower high as the fund encroaches on a fresh price peak. I’d like to see an RSI increase to help confirm a potential breakout heading into year-end. Downside support is likely to appear near $160 – the March high and where the 200dma currently comes into play. The $174 mark is a short-term support point too. FTEC: $180 Resistance, Rising 200dma, $190 Target Still In Play   StockCharts.com The Bottom Line  I have a hold rating on FTEC. The Information Technology sector ETF continues to sport strong momentum and technical strength, but with a PEG ratio above 2, there’s a significant valuation premium.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2477377838"}