Three ETFs To Watch This Week: RTH, TIP, XLI

by on November 15, 2010 | ETFs Mentioned:

This past week saw no shortage of events that had the financial world buzzing with activity. The Fed implemented a portion of their controversial quantitative easing plan, buying a number of U.S. Treasury securities in an effort to jump-start our struggling economy. While this policy has been met with mixed reaction at home, it has seen near universal condemnation abroad. Leading up to, and during the G-20 meeting in Seoul this week, many leaders expressed their concerns and disapproval of the U.S. printing more money and effectively manipulating the dollar’s value, further driving a wedge between the U.S. and the rest of the world. Aside from international affairs, stock markets faced a tough close to the week as Cisco reported disappointing earnings, dragging down the entire tech sector. Finally, the week closed out with China’s major stock exchanges losing 5% on the day as fears of a rate hike sent traders running for the exits. This translated into a very weak day in European and American markets as well as equities tumbled and commodities experienced one of their worst days in recent memory.

A lack of key central bank meetings and no real consensus from the Seoul meetings means that this week investors will focus on data overseas as well as earnings reports here in the U.S.. Both retail and technology sectors will receive the majority of the attention throughout the week, with earnings from industry leaders like Wal-Mart, Target, Home Depot, and Dell leading the charge. The technology sector will be particularly interesting, as Cisco’s share price plummeted 16% on Thursday thanks to a bleak outlook which helped to paint a gray picture for the tech sector as a whole. Likewise it will be interesting to see how these retail giants have performed over the last quarter, and how consumer spending habits have changed since the first half of 2010 [see also Three ETFs To Own If Sarah Palin Is Right].

HOLDRS Merrill Lynch Retail (RTH)

Why RTH Will Be In Focus: Three of RTH’s top holdings will be reporting earnings this week: Wal-Mart (WMT), Home Depot (HD), and Target (TGT). Those these focus in on retail, their results could be across the board, as they focus on very different areas of the consumer market. On Tuesday, Wal-Mart, one of the world’s largest companies, will release its earnings data for the most recent quarter. Analysts have predicted the firm to bring in an EPS of $0.90 with robust revenues topping $100 billion. Wal-Mart has surpassed their estimates for the last four quarters, as consumers have flocked to the low end of the retail spectrum in order to save money during the sluggish economic environment. Look for this report to be a major mover of RTH, as Wal-Mart accounts for nearly 20% of the entire ETF’s holdings [see also Be Careful What You Wish For: Rising Yuan Could Hurt Retail ETFs].

iShares Barclays TIPS Bond Fund (TIP)

Why TIP Will Be In Focus: On Wednesday, the U.S. will release its Consumer Price Index for October, and with all of the controversy over the Fed’s QE2 program, this report will be especially important. For a short period of time, TIPS funds were sporting negative yields showing just how interested investors had become in protecting their holdings against the ravages of inflation. While inflation really hasn’t shown up yet in the official numbers, surging commodity prices across the board suggest that a severe bout of inflation could be on the way. All of these factors combine into a particularly significant CPI result, which will likely put the Treasury inflation protected market– and TIP– into focus. The TIP fund pays out a rate based on the CPI, which effectively hinges this ETFs short-term fate on Wednesday’s report [also read Three Responses To Kauffman’s ETF Bashing].

Industrial Select Sector SPDR (XLI)

Why XLI Will Be In Focus: This week will see the release of two reports that will have a significant impact on XLI. First, the release of the NY Empire Manufacturing Index, which is an economic indicator that uses survey results acquired from New York City manufacturers to get a reading on how the industrial sector as a whole is performing. Later in the week, the U.S. Industrial Production for October will be released. Last month that figure came in at a mere -0.2%, but is expected to jump to 0.3%, which would be good news for this industrials-based fund and would signal much-needed growth in manufacturing activity [see also Next Frontier Of ETF Investing: Long/Short Trades].

Disclosure: No positions at time of writing.