Thursday’s ETF To Watch: S&P 500 SPDR (SPY)

by on September 30, 2010 | ETFs Mentioned:

Despite a September surge in equities, the U.S. economy continues to stagnate thanks to increasing political uncertainty and high levels of unemployment which seem unlikely to go away anytime soon. Due to this, many Americans have lost faith in the economy and its ability to produce jobs in this post-financial crash world. While many perceive that the economy is weakening, two key reports on the U.S. economic situation which are due out today look to help clarify both the current state of the U.S. economy and how it has performed over the summer.

Investors will be focused in on two data releases; the initial jobless claims report and the GDP growth for the second quarter. Jobless claims are expected to fall just 5,000 to 460,000 for the most recent period while GDP growth is expected to pick up 0.2% to a slightly more robust growth rate of 1.8%.  These reports come at an important time right after stock markets have posted a solid September of trading and just weeks before a crucial Federal Reserve meeting and mid-term election in the first week of November. These two key events will also will be affected by today’s reports suggesting that this data could reverberate through the economy for weeks to come. Due to this, we look for the S&P 500 SPDR (SPY) to experience heavy trading during today’s session as these key points are released. The S&P 500 Index is often seen as a proxy for the overall U.S. economy since the index measures the performance of the large cap section of the U.S. equity market which makes up close to 75% of all American publicly traded companies so any macro-level data generally causes high levels of volatility in this index [see all the ETFs tracking large caps].

Currently, SPY is pretty well diversified; six sectors make up at least 10% of the fund’s total assets with financials leading the way at 16.3%. However, the fund is somewhat light in terms of exposure to the business services, media, and utility sectors which combine to make up just 10% of SPY’s holdings. In terms of market capitalization levels, giant caps make up roughly half of the assets with large caps (36%) and mid caps (12.6%) comprising the rest [see more on SPY's holdings page].

SPY has been surging as of late, having posted gains of more than 8.7% over the past four weeks, a figure which is slightly higher than what the fund has returned over the past 52. Data points today will likely do one of two things; lead the markets even higher and continue their rally into October, or it will make the end of the September surge and cause markets to begin to fall back to reflect the dismal economic situation. Either way, look for SPY to remain in focus throughout Thursday’s trading [see Six Reasons To Consider Dumping SPY].

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Disclosure: No positions at time of writing.