Despite turbulence late in the week and a poor jobs report, equity markets managed to finish ahead by close to 1.7% in the first full week of October. While equities and bonds might have had a lukewarm trading session, commodity markets soared higher thanks to ongoing supply worries in a variety of important resources as well as continued concerns over the strength of the U.S. dollar. However, arguably the biggest event of the week was the jobs report on Friday which showed that close to 95,000 jobs were lost in the month of September. While generally this would be considered bad news, investors bought up equities in anticipation of the Federal Reserve moving to act at its next policy meeting to attempt to boost the markets and the economy from its current doldrums.
With the upcoming Federal Reserve meeting looming, October marches on with earnings reports taking the spotlight along with a flurry of key data points which are set to be released across much of the developed world. Look for these reports to set the tone for trading this week as investors hone in on some of the largest and most important companies in the world in order to get a better grip on the markets and the likely policy moves in the fourth quarter. “If earnings or economic news is bad, then we’ll get” a second round of quantitative easing, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. “Therefore the market will still go up. In that sense, risk is asymmetric.” With this backdrop, we profile three ETFs that could be active this week as markets continue their choppy and uncertain path [for more ETF ideas sign up for our free ETF newsletter]:
PowerShares DB USD Index Bullish (UUP)
Why UUP Will Be In Focus: This week looks to be filled with key events which seem likely to heavily impact the struggling U.S. dollar. Data points regarding the trade balance which are due out later in the week, as well as any policy recommendations from the IMF look likely to impact the greenback but will probably not be the focus during this trading week. Many investors will instead focus in on the FOMC minutes which are due out on Tuesday and could offer some important clues on what the Fed thinks about the current economic situation. If the Fed signals further quantitative easing, it could push the yen to a fresh high and weaken the dollar further against comparatively strong currencies such as the Canadian or Australian dollar, or even the as-of-late surging euro [also see Three ETFs To Watch During The Great Currency War Of 2010].
SPDR Select Sector Fund- Financials (XLF)
Why XLF Will Be In Focus: In addition to any policy suggestions that come out of the IMF meeting or further clues about the Fed’s quantitative easing program in its minutes, the financial sector is also eagerly awaiting the quarterly earnings report from JP Morgan (JPM) one of the largest banks in the world and the single largest component of XLF. The company is expected to report earnings of 88 cents, compared to 82 cents per share a year earlier. Revenues however, are expected to fall 14.9% to $24.5 billion thanks to subpar trading revenues and low loan portfolio growth. Meanwhile, the company’s long-term growth prospects are weak compared to many of its large competitors; its EPS growth rate is just 8% which if affirmed by weak revenues or a poor outlook, could spell trouble for XLF during midweek trading [see Beyond XLF: Five Alternatives To The Popular Financial ETF].
Vanguard Industrials ETF (VIS)
Why VIS Will Be In Focus: Two factors look likely to put the industrial sector into focus this week; the PPI data on Thursday and the crucial earnings report from industry bellwether General Electric (GE) on Friday. First, the PPI figures will give investors an early indication of inflation and how companies are dealing with increasing commodity input prices. However, this figure is expected to decline to 1.5% from last month’s reading of 3.1%, suggesting that inflationary concerns are on the back burner for industrial companies which could mean few opportunities to raise prices in the near term.
Meanwhile, the giant GE is expected to at least post a decent quarter after raising their quarterly dividend earlier this year. The company is expected to report a modest earnings increase of seven cents a share over last year’s quarterly profit of 22 cents. Despite this increase, many are expecting the company to post revenues that are moderately lower than the same period last year with the consensus coming in at $37.7 billion. Should these numbers fall short, it is likely to impact the entire sector and push VIS– which allocates more than 12% to the conglomerate– sharply lower to end the week [read Seven ETFs To Invest Like Peter Schiff].
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Disclosure: No positions at time of writing.