Companies across this momentum fund are signaling stronger earnings ahead.

Invesco S&P 500 Momentum ETF (SPMO) has already delivered a +36.9% return over the past year, but what its largest holdings are signaling about their own future earnings is arguably more telling. The fund is designed to mirror the investment performance of the S&P 500 Momentum Index, and when you look under the hood, the forward guidance from these companies paints a clear picture of improving fundamentals.

The signal is overwhelmingly positive. Across the fund's largest positions that have recently reported, holdings making up 59.0% of the fund raised their core guidance for revenue, earnings, or cash flow. By contrast, holdings representing just 1.2% of the fund's weight cut their outlook. The positive signal is also clear from a simple company count, as 19 of the largest holdings raised core guidance, while only 1 cut it. The message from the basket of companies you own is one of rising expectations.

The positive tilt is broad, but it has a clear leader. The single biggest contributor was Micron Technology (MU), which makes up 11.9% of the fund. The company raised its EPS guidance by a substantial 64.0%. Other technology heavyweights added to the momentum, including Nvidia (NVDA) at 7.5% of the fund, Broadcom (AVGO) at 6.0%, and Advanced Micro Devices (AMD) at 4.3%, all of which also raised their forward guidance. The sole counterweight among the largest holdings was Philip Morris International (PM). At just 1.2% of the fund, it lowered its EPS guidance by 12.1%, a move whose impact was dwarfed by the wave of positive revisions elsewhere.

Connecting Future Earnings To Today's Price

So what does this forward signal mean for your investment? A fund's price ultimately follows the earnings of the companies it holds. While SPMO's strong past performance is backward-looking, this collective upgrade to forward guidance provides a fundamental justification for its valuation. You own a collection of businesses whose outlooks are improving. This focus on momentum-driven weighting is just one strategy for approaching the S&P 500; another popular approach involves equal weighting across the index.

The key takeaway is that the engine inside SPMO, the earnings power of its constituent companies, is revving higher. This broad-based improvement in forward guidance is the kind of fundamental tailwind that tends to precede price appreciation. While nothing is guaranteed, you currently own a basket of companies whose own forecasts are working in the fund's favor.