Thursday’s ETF To Watch: Consumer Staples Select Sector SPDR (XLP)

by on July 19, 2012 | ETFs Mentioned:

Stocks ended the session in green territory yesterday as investors were reassured by better-than-expected data on the homefront along with fairly encouraging comments from Chairman Bernanke. “At this point we don’t see a double-dip recession — we see continued moderate growth,” said Bernanke in his testimony to Congress, while at the same time leaving the door open for future stimulus from the Fed if deemed necessary. Solid housing starts data also helped bring back the bulls on Wall Street; housing starts in June came in at 760,000 versus the previous reading of 711,000, marking a healthy uptick [see also Why Buffett Is Dead Wrong On Gold].

Earnings Preview

Tobacco bellwether Philip Morris International (PM) is slated to report quarterly earnings later today before the opening bell on Wall Street. As such, our ETF to watch for the day is the State Street Consumer Staples Select Sector SPDR (XLP), which has Philip Morris in its top-ten holdings, allocating nearly 11% of total assets to this well-known industry giant. This earnings release should offer valuable insights into the health of consumer spending as a whole given the firm’s extensive reach at home as well in foreign markets, both developed and emerging [see also Ex-Financials ETFs For Cautious Bulls].

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After posting solid results in the first quarter of 2012, Philip Morris has revised its full-year forecast this time around; the company cites that the strengthening of the U.S. dollar in recent months, due to threats from Europe, has had a negative impact on bottom line revenues given the firm’s vast international exposure. Analysts are expecting for PM’s Asia market share to rise thanks to robust sales in Indonesia and South Korea; the tobacco giant is expected to generate earnings of $1.35 per share on revenue of $8 billion [see also Which Sector ETFs Are Cheap].


XLP has been marching along a steadily rising support level since its most recent bottom at $28.07 a share on August 9, 2011. This ETF recently hit an all-time high at $35.38 a share on July 17, 2012, showcasing the resilience of its uptrend over the past several months compared to major equity indexes, which have been fairly range-bound. With no resistance levels in sight, profit-taking pressures could strike without warning. In terms of downside, XLP has support at $34.50 a share followed by $33.50 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.