The past few trading sessions have been plagued with worries both abroad and within our own borders. While investors scrambled to get out of equities, gold has seen a spark of life as the precious metal hit an all time high of $1,600 per ounce in intraday trading yesterday, pointing to a lack of investor confidence in the the current U.S. debt situation. With our nation currently struggling to stay afloat amid the enormous pressure that our $14+ trillion in debt has caused, markets have faltered. Though 2011 started off strong, the past few months have been riddled with political instability in the Middle East, and debt crises in Europe and on the home-front, which are aiming to destroy the progress major equities have made this year [see also SICK vs. CURE: Direxion Rolls Out Leveraged Health Care ETFs].
While many will turn their attention to the government’s next move, earnings season is under way, and will have a significant impact on markets despite what may be happening elsewhere. Today will be no exception, as pharmaceutical giant Johnson & Johnson (JNJ) will be reporting earnings from its second quarter of 2011. Johnson & Johnson is one of the largest companies in the country, and is responsible for many household products like Neosporin, Tylenol, and Band-Aid. The company employs over 118,000 people and operate subsidiaries in approximately 57 countries around the globe. JNJ will report earnings just before market open, making the first few trading hours key [see also ETFs & Sector Rotation: Large Cap, Small Cap, Or International?].
Analysts have painted a positive outlook for JNJ, as EPS is expected to come in at $1.23 per share with revenues around the $16 billion mark, which would represent a sales growth of 5.8%. The company has either met or surpassed its last four earnings reports, giving investors confidence that this strong performance will continue in the future. Unfortunately, it is unclear how the current state of the economy has impacted the company, so while JNJ may hit analyst predictions, a foggy outlook could sink the stock on the day [see also ETF Insider: Picky Bulls, Broad Bears].
In light of this earnings announcement, today’s ETF to watch will be the Health Care Select Sector SPDR (XLV). This product is made up of the biggest pharmaceutical companies in the country, with JNJ leading the way, making up over 12.9% of this product. Despite 2011 turning sour, this product has managed to return 10.4% to investors while paying out a healthy dividend yield of 1.67%. If JNJ hits analyst targets, look for XLV to experience a strong trading day, but a foggy outlook from this pharma firm could mean trouble for this ETF for the second half of the year.
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Disclosure: No positions at time of writing.