Equity markets are coming off another rough stretch, as the S&P 500 fell by close to 4% and oil lost nearly 7% last week on increased anxiety over the global economic outlook. These fears came as a result of the Fed’s August policy meeting in which the central bank announced that it was leaving rates steady but would reinvest the proceeds from its maturing mortgage-backed security portfolio in long-term bonds. With this announcement of “quantitative easing part II” many investors sold off their shares and fled for the relative safety of gold and Treasury bonds, both of which held up very well in light of the crisis. While news was not good in the U.S., European markets showed some signs of life; the region reported better-than-expected 1.0% GDP growth for the most recent quarter, led by powerhouse Germany which saw its economy surge higher by 2.2% for the quarter. This eased some investors” fears regarding developed markets and helped the markets to finish the weak flat despite ongoing weakness in the United States and a continued lack of job creation [see Three ETF Ideas For The Third Quarter].
With earnings season all but over–save for a few important retail and tech firms–government data looks to remain in focus this week. Key reports due out this week includes Japanese GDP growth figures, European and Canadian CPI levels, and American PPI. These data points look likely to set the tone for the market this week thanks in large part to the dearth of key central bank meetings and political events. Below, we profile three ETFs that look to be in focus over the next several days [for more ETF ideas, sign up for our free ETF newsletter]:
Merrill Lynch Retail HOLDR (RTH)
Why RTH Could Be In Focus: A slew of retail firms report earnings in coming days, potentially making for a volatile week for the consumer discretionary sector. Four of RTH’s top five holdings, which in aggregate make up roughly 50% of assets, report earnings this week. The most important of these is Wal-Mart, which makes up 20.2% of the fund and is one of the largest companies in the United States. The retail giant is expected to report second-quarter profits of 97 cents a share, up from 88 cents a year earlier, on sales that are expected to rise to $105.5 billion from $100.9 billion last quarter. Many analysts are also predicting that the company will pull out of a same-store sales slump, with growth of 0.1% predicted after four straight quarters of declines. But should Wal-Mart (WMT) post more declining levels of same-store sales and offer weak guidance, it could spell doom for the entire retail sector [also see Be Careful What You Wish For: Rising Yuan Could Hurt Retail ETFs].
iShares MSCI United Kingdom Index Fund (EWU)
Why EWU Could Be In Focus: After last week’s disappointing GDP report and the high levels of austerity being proposed for the highly indebted British economy, a variety of data points look to heavily influence EWU this week. Among the most important releases is a report on retail sales, which is eagerly anticipated given the proposed sales tax increase and the increasingly poor economic situation in the country. Investors will also look at British CPI levels to see if they are still above the Bank of England’s target. If inflation is showing signs of accelerating, the bank may be forced to boost rates sooner rather than later, potentially choking off a recovery to promote price stability.
Lastly, the Bank of England’s minutes for its most recent meeting will be released this week. As investors delve into this report, they will be looking for clues as to how future decisions could impact the pound and British economy [see Non-Euro Europe ETF Options].
Internet Architecture HOLDR (IAH)
Why IAH Could Be In Focus: After Cisco’s weak earnings report–the company missed revenue estimates and slumped by close to 10% on the day–the rest of the technology sector looks to be in focus this week. Two key technology companies, Dell (DELL) and Hewlett-Packard (HPQ), are both reporting earnings this week; these stocks make up roughly one-quarter of IAH. HP is currently dealing with the scandal from its CEO’s departure and the ongoing process of finding a replacement. Both companies are expected to post sales gains, but many analysts will likely be focusing in on the companies’ projections for the rest of the year given the increasingly weak economy and ruthless competition from other computer makers [also see Five Facts About HOLDRs Every ETF Investor Must Know].
Last Week’s ETFs To Watch
SIL: Despite robust earnings reports from both Pan American Silver and Silver Wheaton, SIL sunk by more than 3% last week. The bulk of the drop came on Wednesday as the U.S. dollar strengthened in light of volatility in stock markets, sending metal prices sharply lower. Silver lost roughly 2% on the day and both of the top silver miners saw shares sink. Had it not been for the Fed-induced volatility, it is likely that SIL would have performed relatively well last week; Silver Wheaton reported an earnings increase of almost 200% over last year thanks to robust production levels and rising cash operating margins, which rose roughly 44% year-over-year [see charts of SIL here].
TLT: Long-term government bonds continued their impressive run, as TLT gained more than 3% on the week. This large gain came as a result of the Fed’s August policy meeting, in which the central bank announced that it was going to use the proceeds from its fixed-income portfolio in order to buy up long-term government debt. These purchases, which will likely total $200 billion, seem likely to increase the demand for Treasuries, thus boosting the price for TLT [see more fundamentals of TLT].
NUCL: After a weak earnings report from Cameco Corp, the single largest holding of NUCL at 8% of the fund, and a slowdown in rising nuclear power China, uranium companies had a rough week. The fund sunk by close to 4% after Cameco reported revenues were down 15% from last year and earnings 15 Canadian cents below last year’s levels. This gloomy report helped to send the fund tumbling on the week and put the rest of the nuclear power sector in focus [see more on NUCL's holdings page].
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Disclosure: No positions at this time.