Although September has historically been one of the weakest months of the year for U.S. equities, markets have thrown aside this historical trend in recent weeks and continued their impressive rally last week. The S&P 500 got off to a good start in Monday trading only to stay range bound over the next day before investors digested the Federal Reserve’s policy meeting. Ben Bernanke gave a temporary boost to markets in late Tuesday trading when he stated that the Fed was prepared to step in to help try to boost markets in the near future if the economy and unemployment situations do not improve. However, many also took this a sign that the economy was likely to struggle for the foreseeable future, which helped to fuel a modest sell off on Thursday. Markets then soared by over 2% on Friday to finish the week ahead by a similar amount. Weakness popped up in the financial sector, while a broad swath of the technology and consumer services sectors powered last week’s gains for the stock market, setting the stage for the final week of the month.
Here in the last week of September, the number of market moving data points has slowed to a trickle; no major central banks are meeting this week and virtually no companies of importance have earnings releases scheduled. That means that investors may look to the few events on tap this week for direction, and a handful of data releases and ongoing dramas could determine how red-hot equities close out the month of September. Below, we profile three ETFs that could be active this week [for more ETF ideas sign up for our free ETF newsletter]:
WisdomTree Dreyfus Chinese Yuan Fund (CYB)
Why CYB Will Be In Focus: Last week, President Obama met with Chinese Premier Wen Jiabao in order to pressure the Chinese to dramatically raise the value of their currency and boost the competitiveness of American exports. However, the Chinese have pushed back on this claim saying that if the yuan were to rise too quickly it could push hundreds of thousands of Chinese businesses into bankruptcy and drag the country’s impressive growth rate down at a frightening pace. Despite these protests from the Chinese, a bill has been introduced into Congress to impose duties on countries whose currencies are undervalued.
The bill is expected to hit the House floor soon, having passed over the initial hurdle of the House Ways and Means Committee on Friday. Due to these escalating tensions and the approaching mid-term elections here in the U.S., look for the rhetoric to ramp up in the coming days, which could force the Chinese to throw the United States a small rise in the value of the yuan. If this happens, look for CYB to jump higher as well, and look for the currency to remain in focus as the bill makes its way through Congress [read Chinese Yuan ETFs Back In Focus].
Merrill Lynch Retail HOLDR (RTH)
Why RTH Will Be In Focus: Several key developments this week could impact the consumer sector, and either continue or reverse the recent upward trend of the industry. A variety of American economic data points, including the September Consumer Confidence report, Q2 GDP growth, and the University of Michigan consumer confidence survey, are all due out this week. All three are expected to decline or stay flat, suggesting that the American consumer is less likely to spend going forward [read Which ETFs Would Benefit From Lower Oil Prices?].
Furthermore, a major American retailer, Walgreen’s (WAG), is due to give its earnings report on Tuesday, which could impact the markets in a week that is largely absent of company earnings. The company is expected to post earnings of 44 cents a share, identical to the year ago quarter. This comes on the back of a disappointing report from rival Rite Aid, which posted a net loss of 23 cents a share compared to estimates of losses of 11 cents. Should Walgreen’s follow in the footsteps of Rite Aid and post a weak quarter, look for RTH and the entire consumer sector to be in for a rough week.
Why EWZ Will Be In Focus: Arguably the most important company to the Brazilian economy is the partially state-owned oil giant Petrobras, which happens to be the single largest holding for EWZ. Petrobras has been in focus as of late due to a massive share sale in order to allow the company to raise capital required to start developing vast offshore oil and gas reserves. The sale reportedly totaled over $70 billion and the company is now the fourth biggest corporation on the planet by market capitalization. Due to this, any new developments out of the giant are likely to greatly impact EWZ as a whole as the company attempts to digest this new found cash hoard and develop its offshore oil fields [also see Brazil ETFs In Focus After Puzzling Petrobras Deal].
This massive influx of foreign capital has also caused the value of the real to spike recently, so all eyes will be on the country to see if it moves to weaken the Brazilian currency on the open market. While the bank will likely wait to see if cash begins to flow out of the largest economy in South America now that the share sale is over, any further spikes are likely to be met by high levels of Brazilian real selling by the bank. Many will be looking for this in order to help exporters out and make Brazilian goods more competitive in the global economy.
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Disclosure: Eric is long EWZ.