ETF Database Trends for the Week: October 30

The Natural Gas ETF list was a top trending page on ETF Database this week, with a dramatic increase in traffic by 256% from the previous week. It looks like our readers were interested in ways to play the natural gas industry, since the U.S. Energy Information Administration (EIA) released its storage report this past Thursday.

The EIA report indicated that the storage injection was less than what analysts were expecting, with 63 billion cubic feet versus 68 billion cubic feet for the week ending October 23. Analysts see total storage surpassing 3.9 trillion cubic feet in the next couple of months, and setting a record of around 4 trillion cubic feet. After the report was released, the December futures traded up 2.2% at around $2.35 per million British thermal units (MBTUs). However, Friday’s natural gas prices traded at levels we haven’t seen since 1999, with December futures down 1%, trading around $2.255 MBTUs.

There are several factors affecting this commodity. The first is the natural gas supply, which can be affected by seasonal weather, including tropical storms and hurricanes. From the demand side, natural gas is the main source of heating fuel in almost half of U.S. households. The current warm forecasts show that moderate weather will keep the market oversupplied. In addition, low petroleum prices have had a negative effect on natural gas prices.

Technology ETFs have been trending recently; the technology equities ETFs page traffic has increased by 99% since last week. The technology sector has performed well this year, with an increase of 7% YTD. It seems that investors are looking for exposure to technology companies that have reported earnings in the past weeks and will report earnings in the following week.

Over the past two weeks, we have seen the shares of various technology companies beat earnings expectations. Starting with the “Big Blue,” IBM reported earnings of $3.34 per share, versus analyst estimates of $3.30. Ebay (EBAY) beat investor expectations with earnings of 43 cents per share, versus the 33-cent estimate. Some of the big moves in this sector were by companies such as Alphabet Inc., (GOOG) Google’s parent company, with shares surging to new 52-week highs of $730 on Friday morning. After Alphabet beat top- and bottom-line earnings with earnings of $7.35 per share on revenue of $18.68 billion, versus analyst expectations of $7.21 per share on $18.53 billion in revenue in its Q3 results, Thursday’s shares surged about 10% after the bell. The main driver for Alphabet’s revenue stream has been the traditional Google core business; some of the significant costs for Alphabet are the R&D costs, such as innovative technologies from driverless cars to Google Glass.

Another big technology player that reported earnings was Microsoft (MSFT), which announced its Q1 FYE 2016. Microsoft beats revenue of $21.7 billion and EPS of $0.67, versus analyst expectations of $21.03 billion in revenue and EPS of $0.59. Microsoft still has a decline in its Office and Windows business, but its cloud unit continues to grow. Also this week, Apple (AAPL) beat estimates for the fifth consecutive quarter. Apple’s revenue and earnings were better than analysts’ consensus, with a revenue of $51.5 billion versus a $51.1 billion estimate, and EPS of $1.96 versus the $1.88 analysts expected. Apple’s revenue grew mainly because of its successful launch of the iPhone 6S and iPhone 6S Plus, and overall iPhone sales accounted for 56% of revenue. China also continues to be a driving force for Apple, since China’s iPhone sales grew by 99% year over year.

Going forward, the market is still looking at upcoming earnings from big names such as Facebook (FB), which will report its earnings Wednesday after the bell, with an earnings consensus of $.052 EPS and revenue of $4.36 billion. A lot of analysts have a price target of $105 for FB based on its Instagram monetization as well as advertising growth. Another big technology company that will also report earnings on November 4 is mobile chip giant Qualcomm (QCOM), with an expected revenue of $5.21 billion for the Q4 FY 2014 and EPS of $0.86, which represent a decrease in earnings, as well as revenue YOY of more than 20%.

The NASDAQ 100 Index page trended high this week, with traffic increasing by 94%. This index is up more than 10.5% YTD.

This is likely due to the companies that comprise this index and the overall strong earnings in Q3 2015. Investors may have been looking for ways to invest and take advantage of the recent earnings season. According to FactSet, 340 companies have reported earnings, with 48% of firms surprising on EPS. Also so far this earnings season, 21% of companies released revenue surprises, and 14% of companies beat expectations both in the top and bottom line. The main negative factor for companies not beating earnings or showing stronger revenue was the slow economic growth and the stronger U.S. dollar.

The NASDAQ 100 Index includes some of the biggest non-financial domestic and international companies. Since this index excludes the financial sector, it tends to rely more heavily on the technology sector. Some of the most popular companies include Apple (AAPL), Alphabet (GOOG) and Facebook (FB).

One of our biggest trends this week was the Aerospace & Defense ETF list. The A&D ETF list had an increase in traffic of 106% this past week. Currently, there are 3 main ETFs in this industry: iShares U.S. Aerospace & Defense ETF, Aerospace & Defense, SPDR S&P Aerospace & Defense ETF. In order to understand the performance of an ETF, we first need to look at the objective and the index the ETF tracks. All 3 ETFs are very similar in their investment objectives and have similar holdings. Their investment objective is to get exposure to U.S. companies that manufacture and support commercial and military aircrafts and other defense equipment. Next, we look at holdings, which are the components of the ETF. This is what drives the return on the ETF. Some of the biggest holdings in all 3 ETFs are:

• Boeing (BA) – 66% of revenue ($60 billion out of $90.8 billion total revenue) in FYE 2014 came from the commercial aerospace industry.
• General Dynamics Corporation (GD) – mainly defense, with main customers being the U.S. government, and the Department of Defense accounting for about 75% of revenue.
• Lockheed Martin Corporation (LMT) – mainly defense since 2014; 79% of $45.6 billion in net sales was from the U.S. government, 59% from the Department of Defense, and 20% from international customers (including foreign military sales (FMS) contracted through the U.S. government).
• United Technologies Corporation (UTX) – 45% of revenue came from commercial and industrial sources, 35% of revenue came from the commercial aerospace source, 20% of revenue came from military aerospace and space sources; $9.6 billion out of $65.1 billion in government and military sales in 2014.

Looking at this trend, we can conclude that investors are looking into the aerospace and defense sector for investment opportunities. There seems to be a very clear investment opportunity in this sector. First, let’s start with the commercial airline order backlog; from the past Paris Air Show, Boeing and Airbus have an order booked for 12,000 aircrafts – this represents about 8 to 12 years of production. There is growing demand from regions such as the Middle East and Asia Pacific. Low interest rates across the world is also increasing long-term capital investment and improving airline profitability. Looking at the defense industry, the more tensions there are all over the globe, the more defense product demand there will be. The rising tensions in the Middle East, Syria, Eastern Europe as well as North Korea increase demand for the technologies and products that companies in these ETFs offer. Defense spending is rising in the United Arab Emirates (UAE), India, South Korea and Japan. The main reason for this increase, is these nations trying to equip themselves with modern defense platforms.

The healthcare sector was trending this week with an increase in traffic of 50%. It seems that our readers are looking for ways to play this past week’s earnings in the healthcare sector. This past week, some of the biggest names, such as Amgen (AMGN), Pfizer (PFE), Gilead Sciences (GILD) and Merck (MRK), reported earnings.

Overall, this sector has appreciated up 5% YTD, with a market cap of $117.50 trillion and a P/E ratio of 45.44. The healthcare sector sank 8.1% during the August sell-off. Also, news of merger talks between Pfizer and Allergan brought biotech stocks to the headlines.

Also making headlines in the healthcare sector these past few weeks has been Valeant Pharmaceuticals International Inc. (VRX). Valeant’s stock has been one of the best performing this decade, and one of the most controversial. Valeant shares were up more than 1000% over five years. At the beginning of October, Valeant received subpoenas from federal prosecutors seeking information related to how it prices drugs. Also, congress has raised questions related to Valeant’s price increases. Another controversy started when R&O Pharmacy filed a lawsuit denying that it owed Valeant a $69 million payment. Citron Research also claimed that Valeant created fictitious invoices to inflate revenue. Valeant’s stock is down more than 40% since Citron’s short thesis was published on October 21.

As the week goes on, we’ve seen that the energy sector continues to have a big impact in the market, especially the natural gas industry. With earnings season continuing, we saw two main sectors trending this week: the technology sector with big surprises, as well as the healthcare sector. The aerospace and defense industry is showing a comeback with an increase in traffic due to the fact that the market sees an explicit investment opportunity.

With earnings season continuing, we expect some sector-specific ETF trends to continue, especially in the technology sector. Some of the biggest names in that industry, like Facebook and Qualcomm, will report earnings this week.

By analyzing how you, our valued readers, search our property, we hope to uncover important trends that can help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of each week, we’ll share these trends for the week, giving you better insight into the relevant market trends that will allow you to make more valuable decisions for your portfolio.