Equity markets had a rough end to April, as debt downgrades across Europe weighed on the global markets last week. Spain and Portugal saw their credit ratings cut, while Greek debt fell into junk status as the world anxiously awaits news regarding a bailout package for the highly indebted Mediterranean nation. Although equity markets regained some of their losses on Thursday, markets fell back on Friday as the Commerce Department announced that it was starting a criminal investigation into Goldman Sachs. Oil equities also suffered as a major spill at an offshore platform in the Gulf of Mexico spread and hit the shores of Louisiana. Investors worried that some of the major players in the disaster such as Transocean and Halliburton, would be negatively impacted by any resulting lawsuits (see OIH Sinks On Spill Disaster). This week looks to be an interesting one as well, with Greece once again getting top billing. Additionally, there are a number of key data releases and events that could help to give the market some direction going into May. Below, we profile three ETFs in particular that could see an active week:
SPDR S&P Retail ETF (XRT)
Why XRT Could Be On The Move: Unemployment figures detailing the average workweek, hourly earnings, non-farm payrolls, and the overall unemployment rate will all be released on May 7th at 8:30 AM. These numbers will put many different sectors in focus as investors wait to see if the unemployment rate recedes or losses continue to mount. One of the sectors most heavily impacted will be the retail sector. A strong jobs report will go a long way in alleviating consumers’ concerns and could get many to start spending again. However, a weak jobs report could force consumers to sit on their cash if they remain fearful of high unemployment levels going forward (for other ETFs that may be impacted, see Three Pure Play Consumer Discretionary ETFs).
Merrill Lynch Pharmaceutical HOLDR (PPH)
Why PPH Could Be On The Move: Two of the top three holdings in PPH report earnings on Tuesday. The companies, Pfizer and Merck, are respectively the second and third largest holdings in the fund and combine to make up about 35% of the total assets. Merck is expected to deliver earnings of 75 cents a share on revenues of $11.2 billion, and investors will be especially interested to see how well Schering-Plough has been integrated into the company and the forecast for the rest of 2010. Meanwhile, Pfizer is facing a similar situation in regards to its $68 billion deal for Wyeth which took place last October. The company is expected to post earnings of 53 cents a share on revenues of $16.6 billion according to the AP. Look for these two pharmaceutical giants to help set the tone for the rest of the sector during the first week of May (also see Five Facts About HOLDRs Every ETF Investor Must Know).
iShares MSCI United Kingdom Index Fund (EWU)
Why EWU Could Be On The Move: On May 6th, the United Kingdom will have a parliamentary election that will decide the 650 members of the House of Commons, the lower house of the Parliament of the United Kingdom. The hotly contested race is a virtual dead heat with the Conservative Party currently leading slightly with a 34% to 28% edge over both the ruling party the Labour Party, and the remaining major opposition party, the Liberal Democrats. With a hung parliament–in which no single party has a majority–looking like a distinct possibility, EWU could be in for a wild week. This phenomenon could be could be devastating for stocks in the country; the last time there was a hung parliament British equities sank by close to 21% in the following month. In a recent Finanical Times article, David Schwartz writes that investors should fear a hung parliament and plan accordingly. “Hung parliaments are like mine fields chock full of unexploded mines. I fear shares could easily drop by a double-digit amount at the first whiff of conflict between opposing parties about how to attack the debt problem.”
GDX: After Barrick Gold reported stellar earnings on Wednesday, GDX soared higher and finished the week up by 4.5%. Furthermore, as fear returned to the markets many investors sought the safety of gold which helped to boost the price of the precious metal and send GDX higher in Friday trading despite weakness in the overall market (see fundamentals of GDX here).
TAN: TAN started the week on a low note and slumped close to 6% in the first half of the week. However, after First Solar, the largest component of TAN, reported impressive earnings on Thursday the fund soared higher, making up most (but not all) of the ground lost (see charts of TAN here).
EWO: As expected Heinz Fischer crushed all other candidates and obtained nearly 79% of the vote. The next closest candidate was Barbara Rosenkranz, who finished with 15.6% of the vote. Despite everything going smoothly in the election, the Austrian ETF sunk by nearly 5% in this past week’s trading as sovereign debt fears plagued the broad European market. EWO sustained the vast majority of its loses in Tuesday trading once Greece and Portugal were downgraded (see technical analysis of EWO here).
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Disclosure: No positions at time of writing.