This week sees earnings season kick into full gear, and most companies will be trying to shake off the blow that JP Morgan delivered with light revenues on Friday. Earnings season is always a major market mover, but for the US, the past few strong earnings periods have been overshadowed by things like the euro crisis. Financials will be especially key this week as investors will be anxious to hear the projections from big banks and how the euro crisis will affect domestic equities. Below, we outline three ETFs to keep a close eye on as a big week unfolds [see also Lessons Learned From Gold in 2011]:
MSCI France Index Fund (EWQ)
Why EWQ Will Be In Focus: Early on Friday, it was confirmed by an anonymous EU government source that France would lose its coveted ‘AAA’ rating. Speculation had been swirling ever since December when Standard and Poor’s announced the credit watch of 15 euro zone nations, one of which was France. S&P has been notorious for its downgrades as of late, with the first ever domestic downgrade of U.S. debts in August of last year. The move will likely be met with high opposition especially after Fitch upheld its ‘AAA’ rating of the France. EWQ tracks the French equity market and was down nearly 3% in early trading on Friday. The fund will likely be very active for the majority of the week and faces an uphill battle as far as short-term performance is concerned [see also ETFs To Play AAA Europe].
FTSE China 25 Index Fund (FXI)
Why FXI Will Be In Focus: This fund measures the performance of the largest companies in the China equity market. Notable holdings include China Mobile, CNOOC, and PetroChina, making this a large cap-based product. This emerging market fund will be in focus this week as China is set to report key economic data including yuan loans as well as their GDP from their most recent quarter. Also note that China will be important to watch given that they explicitly stated that they would not participate in oil sanctions against Iran being that they are the largest consumer of Iranian oil. Any further tensions in that global conflict could lead to big swings in this fund [see also Tax Loss Harvesting With ETFs: 6 Ideas To Lower Client Liabilities].
Financial Select Sector SPDR (XLF)
Why XLF Will Be In Focus: This week will be arguably the most important string of trading sessions for XLF until the next earnings season comes around. This fund, which tracks major financial firms, is comprised of top holdings like Wells Fargo, Citigroup, U.S. Bancorp, Goldman Sachs, and Bank of America. Each of the five aforementioned countries, which account for roughly 25% of the fund, will report their earnings this week. Financial earnings will be under heavy scrutiny this time around given the turmoil overseas, meaning that worse-than-expected reports from these companies could mean trouble for this ETF. With JP Morgan being another top holding, XLF dipped by about 1% in early trading Friday after JPM’s earnings miss [see also Financials Free ETFdb Portfolio Now Available].
Disclosure: No positions at time of writing.