The last week of October turned out to be a trick rather than a treat for investors, as the Federal Reserve's upcoming policy meeting weighed on the markets. This ongoing debate over the merits of the program has left many traders unsure how the economy would cope with a smaller QE program, and also how the dollar would deal with another massive round of stimulus. Nevertheless, stocks managed to finish mixed thanks to moderating unemployment levels and a reasonably solid level of GDP growth which helped to soothe market fears to end out the month. A few solid earnings reports also helped to boost markets, especially from ExxonMobil; the oil giant managed to grow its net income by over 55% when compared to the previous year's period.
However, not all the major components managed to please the markets; 3M, which handily beat estimates, managed to sink more than 6.5% after the company reported that it was cutting its profit forecast for the rest of the year, helping to erase the goodwill built up by XOM's solid forecast and report.
Looking ahead to next week in Washington, an extremely important midterm election looks likely to hand the House of Representatives back to the Republicans, possibly setting the stage for a divided government fraught with gridlock for the next two years. Investors are still trying to determine what this will mean for the overstretched federal budget and how this change will impact any further policies that come out of D.C.
Investors will also digest the tail end of earnings season as a variety of important companies give quarterly reports, including Fannie Mae and BP
PowerShares DB USD Index Bullish Fund
Why UUP Will Be in Focus: This week could be one of the most important periods for the U.S. in all of 2010 and is likely to lead to volatile trading for the most popular currency ETF, UUP.
Thanks to the midterm election results on Tuesday night and the Fed's meeting on Wednesday, the dollar could either continue its recent downward trend or finally begin a move to the upside. For the elections, Republicans are widely expected to overtake the House and should severely cut into the Democrats' lead in the Senate. If this happens and a more fiscally conservative position is adopted by the legislative branch, it could be a net positive for the dollar. Shortly after that, investors will look to the Fed in order to see what their plans are for another bout of QE. If the program turns out to be extensive, investors will likely take this as a sign of weakness for the dollar and sell off greenbacks. If however, the QE program turns out to be relatively small, U.S. equities look likely to plunge, but the dollar could rebound [see also Three ETFs To Watch During The Great Currency War Of 2010].
iShares MSCI Brazil Index Fund
Why EWZ Will Be in Focus: The successor to wildly successful and popular Brazilian President Luiz Inacio Lula da Silva was determined over the weekend, a development that will likely put the country's financial markets into focus. Dilma Rousseff, Lula's former Cabinet chief, won the election handily over Jose Serra.
Although Rosseff is the handpicked successor to Lula, it remains to be seen if she will be as pragmatic given her leftist past. She is also relatively unknown in Brazilian politics and has never held an elected office before; she only started to make waves in political circles after Lula picked her to be his preferred successor after several other possible candidates had to withdraw because of scandals. For this reason, markets will likely weigh on her initial comments and minister selections to see where she will govern from. Of particular concern to investors will likely be her comments on the country's surging currency, the real. Lula had put into effect several capital controls in the form of new taxes in an effort to curb the real's rise, so it will be of interest to investors to see if she plans to continue or extend these programs once her term begins [also see The Ten Commandments Of ETF Investing].
Why BDH Will Be in Focus: BDH will be in focus this week thanks to both of its top components reporting earnings: Qualcomm
QCOM's earnings report is due out after the bell on Wednesday and analysts expect the company to post profits of 59 cents a share on $2.84 billion in revenues. The company has been riding high on shipments of its in-demand CMDA-based integrated circuits, which are crucial components of a variety of smartphones, including the iPhone. By some analyst estimates, the company has supplies two million CDMA basebands to Apple alone in the fourth quarter, and many are hoping for solid guidance for the end of the calendar year -- and 2011 -- as consumers continue to buy up high tech goods despite the sluggish economy [see Five ETF Ideas For Contrarian Investors].
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Disclosure: Eric is long EWZ.
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