With investors divided over the prospects for equity markets heading into the second half of 2010, another highly anticipated earnings season kicked off last week, with mixed results. After a flat Monday, markets surged higher following a slew of impressive reports, only to retreat after some disappointing numbers from the financial sector and a shockingly low reading from the consumer confidence index to close the week. That caused many who had been banking on a stellar earnings season to reevaluate their outlook, and hope for a new catalyst to emerge from reports still to come [see Three ETF Ideas For The Third Quarter].
This week, earnings season continues with a number of bellwethers due to release second-quarter results; among the biggest names reporting are Johnson & Johnson (NYSE: JNJ ) , Coca-Cola, 3M, Apple, and Microsoft. Additionally, the European Union looks to release figures regarding its bank stress program on Friday, so look for financials to again be in focus to finish this week. Finally, central bank meetings in Canada and Brazil could make for some interesting developments in what is shaping up to be one of the most active trading weeks of the year. Look for another rocky, wild week on Wall Street as bulls and bears continue to duke it out. Below, we profile three ETFs that look to be in focus over the next several days as earnings season kicks into high gear [for more ETF ideas, sign up for our free ETF newsletter]:
Merrill Lynch Pharmaceutical HOLDR (NYSE: PPH )
Why PPH Could Be in Focus: With markets exhibiting volatility, many investors are focusing in on sectors with lower perceived risk, such as pharmaceuticals. This sector faces a number of tests this week given the number of top companies reporting earnings. PPH looks to active be as four of the top six holdings in the fund will release results this week, including the top holding Johnson & Johnson (JNJ, 25% of assets) and pharma giants Eli Lilly and Abbott Labs. JNJ is by far the most important given its high weighting and its position as the world's largest company in the sector. Analysts, on average, expect the company to report earnings of $1.21 per share on revenue of $15.70 billion. In the year-ago period, the company reported earnings of $1.15 per share on revenue of $15.24 billion. While investors will focus on revenues for JNJ and its recent recall woes [see Trouble At Johnson & Johnson Infects PPH], other pharma companies could give PPH direction as well.
Claymore/NYSE Arca Airline ETF (NYSE: FAA )
Why FAA Could Be in Focus: With an oil price seemingly stabilizing and hints of increased consolidation in the industry, the airline industry has battled back from the brink of collapse yet again. However, with unemployment still intolerably high and businesses cutting back, air travel, especially for business, has suffered. FAA looks to be in focus this week as four of the fund's top eight holdings are scheduled to report earnings, including the top holding UAL Corp which makes up more than 15% of assets (United, Delta, Continental, and US Airways are also scheduled to report).
Investors will be curious to gauge the financial impact of the volcanic eruption that halted air travel for several days earlier this year [also see Clear Skies For Airline ETF].
Merrill Lynch Internet HOLDR (NYSE: HHH )
Why HHH Could Be in Focus: All of the top three holdings of this ETF are scheduled to report earnings this week; Amazon (38.5% of assets), eBay (18.4%), and Yahoo! (14.2%). The three combine to make up nearly three quarters of HHH's total holdings, meaning that surprises from these three Internet giants could have a big impact on shares of this heavily concentrated ETF. Amazon's report will be particularly interesting given the sharp price cut to its flagship Kindle e-book reader and increased competition from Apple's iPad in the quickly growing mobile book space. Analysts, on average, expect Amazon.com to report earnings of $0.77 on sales of $6.6 billion, compared to EPS of $0.40 on sales of $4.7 billion a year ago [also read Why Amazon's Deal With Target Could Be Good News For HHH].
Last Week's ETFs to Watch:
[iShares Dow Jones US Financial Svc ETF (NYSE: IYG ) ]: Despite surging to start the week, disappointing earnings from JPMorgan Chase and non-existent revenue growth from Bank of America and Citigroup conspired to sink the fund by almost 5% in Friday trading. The steepest losses came from Bank of America, which fell by more than 9% to close out the week thanks to sharply lower profits from Merrill Lynch and declining revenues from fees due to new debit card rules enacted by Congress earlier this year. Luckily for investors, part of this loss was canceled out by gains earlier in the week helping IYG to only lose 2.9% on the week [see fundamentals of IYG here].
[Semiconductor HOLDRs ETF (NYSE: SMH ) ]: In the first half of the week SMH soared; the fund posted a 4% gain through the early part of trading on Wednesday. This climb came after Intel reported record profits and gave solid guidance for the rest of the year. The company reported earnings of 51 cents a share (compared to a loss of 7 cents a share a year ago) on the back of increased consumer spending and more robust spending in the corporate market. However, general market concerns pulled down the fund in the second half of the week and took SMH back down to roughly where it started the week.
[iShares MSCI Brazil Index ETF (NYSE: EWZ ) ]: The popular Brazil ETF from iShares had a rough week; the fund only registered a gain in Wednesday trading. This came after reports suggested that Brazilian job creation was sharply lower and that retail sales were weak. These statistics put into doubt a rate hike at the central bank's meeting this week, calling into question the quality of the Brazilian recovery. EWZ was down almost 5% on the week and has now posted a loss of 14% on the year [see holdings of EWZ here].
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Disclosure: No positions at time of writing.
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