U.S. equity markets continued their September surge last week, as the Dow and S&P 500 both posted solid gains to mark the third consecutive week in positive territory. Meanwhile, the Nasdaq posted an even stronger five days and was up every day last week thanks to solid earnings reports out of a variety of names in the tech sector; the benchmark gained close to 3.3% on the week. Meanwhile, gold continued to remain in focus as traders took notice of the yellow metal’s meteoric rise to record levels; an ounce of gold is now within striking distance of the $1,300/oz. mark as confidence continues to wane in developed markets around the world, sending many towards this traditional safe haven.
As the summer fades into memory, data releases usually pick up their pace. However, this week looks to be another slow one in terms of earnings reports, with only a few key firms announcing their results. The pressure of continuing the solid September gains is likely to weigh on the markets as traders scrutinize a variety of data releases including a Federal Reserve meeting on Tuesday, existing home sales on Thursday, and durable good orders on Friday. With so little in the way of earnings on tap this week look for these key data points to help drive financial markets this week. Below, we profile three ETFs that could be active this week [for more ETF ideas sign up for our free ETF newsletter]:
Why IGV Will Be In Focus: Last week one of the biggest winning segments of the market was the tech sector, which saw large gains across the board including jumps of close to 6% for Cisco and Microsoft and a near 10% gain for Oracle. While most names in the software segment were up big over the past week, one leading company failed to ride last week’s tech wave: Adobe Systems (ADBE). The software company only managed to muster a gain of less than 2% on the week, significantly underperforming the Nasdaq over the time period. However with the company’s quarterly earnings report coming up on Tuesday that could change very quickly–or lead the company into a bigger hole against its major competitors.
The company is expected to report EPS of 49 cents on sales of just under one billion dollars. Should the company match expectations, it would represent not only a huge surge from last quarter, but a massive increase from the year ago period in which the company reported earnings of just 28 cents on sales of just under $700 million. If the company is able to post robust earnings it will go a long way to reversing the recent downward trend of the company which has come under fire from Apple and was recently downgraded by Morgan Stanley. ADBE makes up 8.2% of IGV’s total holdings, making the company the top allocation for the popular software ETF from iShares [see Nine Twists On Sector ETF Investing].
PowerShares DB USD Index Bullish Fund (UUP)
Why UUP Will Be In Focus: A slew of data reports, as well as continued strength in the precious metal markets, looks to keep the U.S. dollar in the news for much of the week. The main focus will undoubtedly be the Federal Reserve meeting–which is scheduled for Tuesday–but housing data, unemployment numbers and durable goods orders look likely to impact the greenback as well. While this meeting is usually a key event for the dollar, many analysts do not believe that it will have the same impact this time around. “I believe that this FOMC meeting will be far less dramatic than the previous one,” said Yohay Elam, analyst at Forex Crunch. “I believe that Ben Bernanke will continue the pledge to support the economic recovery by committing again to keeping the interest rates at a low level for an extended period of time. Given the recent better-than-expected NFP (non-farm payrolls), I don’t see a high chance of more extreme measures such as raising inflation targets, an idea that Bernanke raised in Jackson Hole but took off the table quickly.”
Due to this, both of the data reports look to be extremely important this month, especially given the results of last month’s figures. Existing home sales plunged by over 27% in month-over-month terms while durables ex-transportation slumped by 3.7%, leaving many to wonder if the country is headed for a double dip recession. Should either of these numbers come in worse than expected look for the dollar and UUP to be under significant pressure this week as investors continue their recent exodus from the American currency [also see All American ETF Options].
PowerShares DB Agriculture Fund (DBA)
Why DBA Will Be In Focus: As corn and wheat prices continue to surge, many investors will be anxious to see if this trend continues again this week or if the staple food commodities finally step back from their 52 week highs. As both of these important crops enter their harvest seasons, it will be interesting to see if both are in fact experiencing the lackluster yields many are predicting. Dor the corn crop, the USDA is now predicting yields of just 160 bushels an acre compared to 165 just a month ago. While this may not seem like a huge decrease, don’t forget that close to 87.9 billion acres of corn were planted this year, so this 5 bushel decrease represents a decline in stocks of close to half a trillion (439.5 billion) bushels of corn. Corn futures take up the top spot in holdings of DBA so should these predictions come true regarding the lower yields look for DBA to remain at elevated levels heading into the fall season [also read The Perfect Storm For The Corn ETF?].
Meanwhile, wheat markets have seen a similar surge but for completely different reasons; an end to Russian wheat exports has combined with low temperatures in both China and Canada to make investors worry about the future of this important crop. The cold weather in Canada may dramatically cut back the level of top quality wheat for export. On average, 62% of the Western Canadian spring crop reaches the top two quality levels but this year many are expecting that figure to drop below 45%. “It’s been a very unusual year,” said Canadian Wheat Board Chairman Allen Oberg. “Delayed seeding was bad enough but when you have a very wet summer with cool weather, that’s put us in the position where we’re at.” Since wheat also takes a high weighting for DBA, look for this to once again be a wild week for the popular commodity fund.
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Disclosure: No positions at time of writing.