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The year 2019 shifts spotlight to small-cap stocks which boast cheaper valuation. Last year was extremely volatile for the space with the worst annual decline since the 2008 financial crisis.

On the earnings front, analysts expect small-cap companies in the Russell 2000 index to record double-digit gains in 2019, per financial data provider Refinitiv,  as quoted on Wall Street Journa l. The earnings growth prospect clearly beats the S&P 500.

Profits from the Russell 2000 are estimated to increase about  16% in Q1 of 2019  from 12.6% expected growth for Q4 of 2018. Per Earnings Trends issued on Jan 9, 2019, the small-cap index S&P 600 is expected to log 5.1% growth in Q4 and 7.9% in the first quarter of 2019. Meanwhile, the S&P 500 is expected see earnings growth of 10.7% in Q4 and 1.9% in Q1 of 2019.

Investors should also note that a fast-growing U.S. economy should favor domestically-focused, pint-sized stocks over the larger ones as several foreign countries are presently under pressure. If investors want to know sector-specific outperformance, they need to dig deeper into the earnings scorecard of the S&P 600 and understand the areas of strength in this capitalization.

Inside Q4 Earnings Expectations

For Q4, total S&P 600 earnings are expected to rise 5.1% on 6.7% higher revenues.

Consumer Discretionary

Earnings and revenues for the consumer discretionary sector are expected to be up 472.2% and 6.1%, respectively.

Invesco S&P SmallCap Consumer Discretionary ETF ( PSCD )

The 94-stock fund puts 29% weight in specialty Retail, followed by 125.2% in Auto Components, 13.6% in Household Durables, 12.9% in Hotels, Restaurants and Leisure and 12.1% in Textiles, apparel and luxury goods. The fund charges 29 bps in fees (read: Hottest Online Stock & ETF Deals for Cyber Monday ).

Oil/Energy

Earnings growth is expected to be 101.3%, while revenue growth is 16.7%.

Invesco S&P SmallCap Energy ETF ( PSCE )

Energy equipment and services companies take 52.79% of the 37-stock fund while 47.21% weight goes to oil, gas and consumable fuels. It charges 29 bps in fees (read: Oil Heads for Biggest 2-Year Weekly Gain: 5 Top ETFs, Stocks ).

Construction

Overall, the sector is expected to see a 26.8% uptick in earnings and 9.2% rise in revenues.

 Invesco Dynamic Building & Construction ETF ( PKB )

The fund has about 40% exposure to small-cap construction stocks, followed by 37% in mid-caps and the rest in large caps.

Utilities

Earnings growth is likely to be recorded at 23.7% though revenue growth is expected to be a negative 0.4%. 

Invesco S&P SmallCap Utilities & Communication Services ETF PSCU

The underlying Index measures the overall performance of common stocks of U.S. utility companies and communication services sector firms. The 23-stock fund puts 23.6% weight in diversified telecommunication services and 23.5% weight in gas utilities. Media (16.7%) and Water Utilities (14.2%) also get double-digit weights.

Financials

Overall, the sector is expected to advance 22.2% on 6.3% higher revenues.

Invesco S&P SmallCap Financials ETF ( PSCF )

The 137-stock fund offers exposure to small-cap U.S. financial services companies. Banks (36.9%), equity REITs (24.7%) and Insurance (14.1%) have a double-digit weight in the fund (read: Are Bank ETFs Good Buys Before Earnings Release? ).

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