Wednesday's ETF to Watch: Broker-Dealer Fund

As we kick of earnings season yet again, investors are anxious to see whether or not individual reports will match the impressive performance recently seen in the broad markets. After the Dow gained roughly 7.7% in September alone, many began to see a light at the end of the tunnel, as the recovery seemed to be on track thanks to strong growth in numerous emerging markets. Now straddling the 11,000 mark, the Dow is up to levels that have not been seen since May of this year. While all of this is good news -- and will likely be augmented by a QE boost from the Fed -- individual earnings will be under the microscope, to see if companies were able to match the market's surge with impressive earnings gains of their own.

Today, Charles Schwab Corporation (NYSE: SCHW) will report its earnings, giving investors insight into how the broker-dealer world has performed this past quarter. Schwab is best known in the ETF world for offering commission-free trading, a service that was recently matched, and by some estimates, exceeded by TD Ameritrade [see TD Ameritrade To Offer Commission-Free ETF Trading]. As one of the leading brokers in the U.S., Schwab's quarter will point to trends in the industry as a whole, so look for this bellwether to set the bar for the industry with its report.

Before the market opens, Schwab will announce its earnings, which analysts have estimated that SCHW will post profits of $0.15 a share and revenues just breaking the billion-dollar mark. This is the same estimated EPS that was given last quarter, and Schwab beat those predictions by 2 cents. Overall, many are predicting a solid quarter for the brokerage firm, as their sales are expected to have grown over 5%. This should be good news for investors, as Schwab had a rough first quarter, shattering the confidence many had in the once rapidly growing company [see also How To Use ETFs To Invest Like Warren Buffett].

With this earnings report set for today, the iShares Dow Jones U.S. Broker-Dealers Index Fund (NYSE: IAI) should be active. Schwab accounts for 6.1% of this ETF's total assets, along with other big brokerage names like Goldman Sachs, Morgan Stanley, and TD Ameritrade. IAI spreads its assets out across firms of all sizes, but tends to focus on medium-sized firms which make up 38.1% of the fund [see all of IAI's holdings here]. If Schwab misses its mark, and fails to meet expectations, look for this ETF to take a hit on the day, but if the company meets or exceeds expectations, this ETF seems like a likely bet to prosper [see Broker-Dealers: The Best Financial ETFs?].

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