The beginning of earnings season last week provided a welcome distraction from the more troubling forums that have been capturing the attention of investors in recent weeks. The latest developments in Europe’s ongoing debt saga and twists and turns in Washington related to the fast-approaching debt ceiling have been steering markets in recent sessions. Those events will no doubt continue to influence asset prices this week, but investors will also have a slew of earnings reports from industry bellwethers to consider as well. But the slew of bellwethers reporting earnings this week should provide additional consideration for investors still trying to evaluate the status of the U.S. recovery.
The earnings reports form last week were generally positive, highlighted by Google’s impressive second quarter results. The search engine giant jumped more than 12% in after hours trading on Thursday after beating analyst expectations, reclaiming part of the spotlight from smaller tech companies that have attracted huge investment in recent weeks.
Below, we profile three ETFs to watch as earnings season continues and the debt ceiling talks come to a head; each of the following funds should be active during the coming week, and may be capable of big volatility depending on these outcomes [for more ETF ideas, sign up for a free trial to ETF Insider]:
iShares Dow Jones U.S. Technology Index Fund (IYW)
Why IYW Will Be In Focus: This ETF finished last week with a bullish tone after Google soared on earnings-related news (GOOG is one of the largest components of IYW). This week will bring additional tests on the earnings front, as many of the fund’s largest holdings are scheduled to release Q2 results. IBM kicks things off on Monday, and Apple will release earnings after the close on Tuesday. Microsoft is scheduled to report its fiscal fourth quarter results along with full fiscal 2011 results after the bell on Thursday.
Those three companies combine to make up nearly a third of IYW’s holdings, meaning that the reports should have a direct impact on the ETF’s price throughout the week. The figures should also shed some light on the health of the overall tech sector, and commentary from company executives could trickle down throughout the industry.
Pharmaceutical HOLDRS (PPH)
Why PPH Will Be In Focus: Among the many companies reporting earnings next week are a number of pharmaceutical giants; close to half of PPH’s portfolio will release results from the most recent quarter during the next few days. That includes Johnson & Johnson, which makes up about a quarter of holdings and will release earnings on Tuesday. Merck and Pfizer will follow in coming weeks, so look for PPH and other pharma ETFs to take their cues from these upcoming releases.
Like many HOLDRS, PPH is extremely concentrated in a few names; the three companies mentioned above make up over half of the portfolio, and there are only about 14 components in total. So while PPH isn’t a true ETF, it is more sensitive to company-specific developments than other products offering exposure to the same segment. Expect this fund to see plenty of volatility around earnings releases [see Five Facts You Must Know About HOLDS].
Why TLT Will Be In Focus: The ongoing debt ceiling drama continued to play out late last week and throughout the weekend, with multiple potential plans being thrown out and lengthy negotiations continuing between multiple factions from both parties. As the critical August 2 date draws nearer, lawmakers are facing increased urgency to resolve the issue, especially after ratings agencies announced last week that a downgrade could come shortly after the first missed debt payment.
TLT offers exposure to long term government debt, and as such stands to be impacted by the latest developments out of Washington. Although most investors have expected a resolution to the issue before the government runs out of money, Treasuries should get at least a minor boost if a debt ceiling increase is enacted in an orderly manner. If, however, negotiations once again fall apart, Treasuries could come under pressure as major holders of U.S. government debt begin to reduce their exposure.
Disclosure: No positions at time of writing.