Last week was a quiet but generally positive one for the markets as shares rose in a variety of sectors thanks to stronger commodity prices and quality earnings reports. The biggest gainers came out of the basic materials sector where major oil firms gained significantly and oil equipment and service companies also posted solid trading weeks on continued optimism over the world economy. The spotlight continued to be on the Middle East where a report regrading Iranian plans to send warships to Syria via the Suez Canal shook the markets in mid-week before dying back down by Friday trading. Protests also continued in a number of Middle Eastern nations as Libya and Bahrian experienced the largest-scale demonstrations, putting governments around the region on edge.
This week, the focus looks to once again be on earnings releases and government data, as markets keep an eye on the situation in the Middle East as well. Although the bulk of earnings season is over, a number of key firms in the energy, tech, and retail sectors are still on tap while a number of important data releases– including GDP and Durable Goods Orders– are set for release in this holiday shortened week. With this backdrop, we look for the following ETFs to be in for an active, and possibly volatile, week:
WisdomTree Middle East Dividend ETF (GULF)
Why GULF Will Be In Focus: After Mubarak was forced to step down in Egypt many thought that the worst of the protests was over. However, the violence and turmoil has now spread beyond Egypt to Libya and the Gulf State of Bahrain as well. The protests in Bahrain have turned extremely violent with the military opening fire on the demonstrators, killing several and injuring hundreds. Similar situations have also taken place in some of the other smaller countries in the region such as Yemen but, so far, more prosperous countries such as the UAE and Qatar have been immune from this situation. Should the violence continue or spread to the likes of Doha or Dubai, look for investors to continue their exodus from the Gulf region and send shares of GULF sharply lower on the week. Due to this possibility, investors should pay attention to any political developments that happen in any of these extremely autocratic nations or if any concessions are made by the governments in order to appease their people [see Examining International Dividend ETFs].
Merrill Lynch Retail HOLDR (RTH)
Why RTH Will Be In Focus: Although the number of companies reporting might be small, they are heavily concentrated in the retail industry which looks to have several of its most famous firms report this week including Wal-Mart, Target, and Home Depot, just to name a few. The three giants make up slightly over two-fifths of the popular HOLDR, and as a result the fund could be in for a very volatile week and interesting week. Unsurprisingly, many analysts will focus in on the report from Wal-Mart, the world’s largest retailer, as a good barometer of consumer spending for the country. The company has seen six straight quarters of falling same-store sales but it expects this trend to finally reverse in this week’s earnings release with a 0.5% increase. Should the company fail to post an increase in sales it could signal to many that the consumer is still slow to recover and that retail firms are still lagging the broader market recovery [see fundamentals of RTH here].
S&P Oil & Gas Exploration & Production SPDR (XOP)
Why XOP Will Be In Focus: Oil markets have been extremely volatile as of late with prices surging thanks to unrest in the Middle East and Iranian military moves, only to fall back down thanks to cooler heads in the region. While the situation remains uncertain, one thing is for sure; prices at these levels are certainly good for companies engaged in the exploration segment of the market as their services are in much greater demand under these conditions. One key firm in this sector is Chesapeake, an Oklahoma-based company that specializes in the production and exploration of fossil fuels. The company is scheduled to report earnings after the bell on Tuesday and as a result, it should put the rest of the sector, and particularly XOP, in focus.
CHK, takes the top spot in XOP at just over 3% of the fund’s total holdings suggesting that it is one of the largest and most important firms in the industry. The company is expected to post earnings of 63 cents a share, down from the year ago period in which the company reported EPS of 77 cents. Thanks to the slump in natural gas prices, many investors are likely to give the company the benefit of the doubt for the most recent quarter and are instead likely to focus on the firm’s guidance for 2011 and its plans for the much more in-demand oil market. Additionally, look for investors to take a keen interest in the company’s recent venture with China. Further news on this development could help to propel shares of XOP higher even if CHK reports lackluster earnings [also read Warning: Obama's Budget Could Sink These Three ETFs].
Disclosure: No positions at time of writing, photo courtesy of Jayson De Leon.