Three ETFs To Watch This Week: XHB, UUP, IGV

by on September 19, 2011 | ETFs Mentioned:

This past week was a generally positive one for markets as investors shook off European worries for the time being, buying up equities across the board. Although stocks trended lower in Monday trading, they soon took off in the middle part of the week as a coordinated effort by the leaders of the euro zone seemed to save Greece from a catostrophic default for the time being. The leaders of Greece, Germany, and France, issued a joint statement saying that Greece was a ‘integral’ part of the euro and that the nation’s removal from the currency bloc was as of now, out of the question. Markets then continued their rally later on in the week as a coordinated boost of dollar liquidity by some of the world’s key central banks helped to soothe fears of a European liquidity crunch, and suggested to many that the world’s central banks had learned their lesson from the last crisis, helping to boost investor confidence heading into the weekend.

Looking ahead to the next few days, investors will have a great deal of data points to digest, ranging from a number of earnings reports, to central bank meetings and government data releases. Among the biggest companies reporting this week are homebuilder Lennar, tech giants Oracle and Adobe, and package delivery firm Federal Express. Beyond these key reports, investors will also look to a variety of data points coming from overseas including minutes from some key central banks, inflation and GDP growth in some of the smaller developed markets, and interest rate decisions from the Bank of Norway, and most importantly, the Federal Reserve. The Fed meeting looks to attract a great deal of attention this week as it could set the stage for either more easing or a gradual return to a more ‘normal’ monetary policy. Bernanke has given the FOMC two days this time to discuss any and all measures that could be used to boost the economy, so if any surprises come out of this meeting it could be another wild ride this week as well. With this backdrop, investors should look for the following three ETFs to be in for an active week:

SPDR Homebuilders ETF (XHB)

Why XHB Will Be In Focus: In addition to a earnings report from key component LEN to open up the week, investors in XHB will also see the fund’s top holding, Bed Bath & Beyond (BBBY), give its earnings report this week as well. The home goods retailing giant is expected to post profits of 84 cents a share, a 20% increase from the year ago period, a relatively high figure given the lack of interest in the housing market and the generally weak consumer economy. Nevertheless, BBBY has produced growth of 33% over the past year so a 20% increase certainly isn’t out of the question. Beyond these key reports, investors will also look to a number of housing figures to move this fund. Housing Starts, Existing Home Sales, and the FHFA House Price Index are all due out this week, potentially giving investors more clues as to how the crucial housing market has been holding up in these weak economic times [see Seven Surprising ETF Holdings: Why Investors Should Always Look Under The Hood].

S&P North American Technology- Software Index Fund (IGV)

Why IGV Will Be In Focus: This week will see two key earnings releases from the software sector, potentially signaling how this corner of the market has held up with the significant headwinds from both the American and European economies. Both Oracle and Adobe give their reports this week and these two giants combine to make up close to 14% of the fund’s total assets so any deviation from analyst expectations will surely have a large impact on IGV shareholders. Given the extreme weakness last week in IGV’s sister fund, the S&P North American Technology-Multimedia Networking Index Fund (IGN), many will look for ORCL and ADBE to buck the trend and show better earnings than their multimedia counterparts, putting extra pressure on this sector to carry tech going forward [see also Tech ETFs In Focus: Highlighting Some Hyper-Targeted Options].

DB USD Index Fund (UUP)

Why UUP Will Be In Focus: Data regarding the American economy has been extremely weak as of late. Consumer confidence is down, employment saw no change for the most recent month, and manufacturing and industrial activity is either approaching, or already in, contraction levels in many regions of the country. Thanks to this weakness, many are expecting the Federal Reserve to bring more stimulus into the markets when it discusses its options at its two day policy meeting later this week.

However, thanks to ultra-low interest rates, the options for the FOMC are extremely limited and most expect the central bank to take more unorthodox measures when it meets. Among the most likely options appears to be what is known as ‘Operation Twist‘ in which the Fed would exchange shorter dated bonds for longer dated ones in order to push down long term rates while others believe a cut in interest rates paid to banks on excess reserves could be in the cards later this week. Either way, more stimulative measures, if they add to the Fed’s balance sheet, could be a dollar negative while any more policy measures at all could signal a weakened economy and possible push investors back into the dollar as a ‘safe haven’ in these uncertain times. No matter what happens, it looks to be a very interesting, and possibly volatile, week for the greenback [ETF Insider: The Dust Has Yet To Settle].

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Disclosure: No positions at time of writing.