Despite lukewarm data, markets soared last week to finish out the month, propelling equities to their best September since the World War II era. Despite this gain on the month, equities finished the week slightly below their Monday opening levels with the S&P 500 sinking by 0.2% and the Nasdaq slipping by 1.3%. This flat week was fueled by continued concern over the economic situation in Europe which then eventually gave way to worries over the American economy which continues to flat line as precious metals and other commodities surge in value. Nevertheless, much of the manufacturing data, including Thursday’s Chicago PMI report and Friday’s ISM Manufacturing Index, left some investors feeling more upbeat heading into the fourth quarter as the relatively bullish industrial data could combine with a weaker dollar to finally create much needed jobs in the United States.
Here in the first full week of October, earnings reports and central bank meetings again dominate the news headlines after a brief hiatus in the last few weeks of September. Key meetings in Europe look to give markets direction early, while news out of the Japanese Central Bank looks to be in focus as well. Additionally, a number of key market bellwethers, including Pepsi and Costco, highlight the beginning of the fall earnings season which should make for an interesting series of trading sessions for most investors. Below, we profile three ETFs that could be active this week given the return to earning season [for more ETF ideas sign up for our free ETF newsletter]:
PowerShares Dynamic Food & Beverage ETF (PBJ)
Why PBJ Will Be In Focus: Thanks to continued uncertainty in developed markets, a weak dollar, and strong demand in emerging economies, many investors have flocked to the consumer staples sector as one of the primary equity havens from the storm. All of these trends will be put to the test later this week as both Pepsi (PEP) and Yum! Brands (YUM) give investors their quarterly earnings reports. Both of these companies–which until recently used to be in the same organization– are leaders in their respective fields and will likely impact the valuations and guidance for competitors such as Coca-Cola and McDonalds, a fact which could make PBJ in for a wild week.
Why EZU Will Be In Focus: Despite some rough sailing in many European markets, the euro has managed to gain close to 2.1% against the dollar in the past week and 7.6% against the greenback during the month of September. This has signaled to some that the European debt crisis, while still severe, is at least under control for the time being. This belief has helped EZU to soar close to 10% over the past month or more than 400 basis points more than SPY over the same time frame.
If this short-term outperformance is going to continue, it will be thanks to solid data reports which are littered throughout the week. Monday starts off with euro zone PPI numbers, which are then followed by GDP growth figures and German factory orders on Wednesday. The data-filled week is capped off with a European Central Bank policy meeting on Thursday. While the bank is expected to hold rates steady, investors will be listening to President Trichet’s comments regarding the health of the common currency and the progress of the organization in terms of soaking up excess liquidity. Due to these reports, look for the entire European economic area to be in focus throughout this week’s trading [see all the ETFs in the European Equities ETFdb Category].
IndexIQ Australia Small Cap ETF (KROO)
Why KROO Will Be In Focus: As developed markets around the world continue to struggle, one advanced market has managed to buck the trend and surge higher; Australia. The country was among the first to raise rates following the financial crisis and has benefited from strong commodity demand in China and other emerging Asian markets which have helped to buoy the Aussie economy. While there is no consensus, more economists than not believe that the Reserve Bank of Australia will increase its benchmark rate by 25 basis points up to 4.75% when it meets on Tuesday in order to help ward off inflationary pressures.
Due to the uncertainty of the decision, look for the Australian dollar to be in focus during this week’s trading session as well as small cap companies in the country which are more likely to be impacted by country specific events than the multi-national driven EWA. Furthermore, Australia will also release data regarding its unemployment rate and employment change. Should these numbers deviate from the projections– which show that the Australian unemployment rate will stay at 5.1%– look for KROO to be on the move in Thursday trading as well [read Seven ETFs To Invest Like Peter Schiff].
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Disclosure: Eric is long PBJ and EWA.